Basics of Our Economic System Chapter 14

Principles of Our Market Economy Circular flow – people exchange their labor to buy goods and services from many businesses https://www.youtube.com/watch?v=2wM0jHL6TQs

Supply & Demand

Law of Demand Demand – the amount of a product or service that buyers are willing and able to buy at different prices When the price of a good or service falls, consumers will buy more of it. As the price of a good or service increases, consumers will buy less.

What factors affect demand? Market size - # of consumers Consumer tastes – popularity (is it in style?) Consumer expectations – will it be cheaper later? Substitutes – can I buy something else? Complements – if I buy one item I need something to go with it Income – make more, buy more

What factors affect demand?

Law of Diminishing Marginal Utility The benefit for using each additional unit of a good or service during a given time period tends to decline as each is used

Law of Diminishing Marginal Utility

Law of Supply Supply --- the amount of a product that producers are willing and able to offer at different prices Producers are willing to sell more of a good or service at a higher price than they are at a lower price.

Supply and Demand Market price is the price at which buyers and sellers agree to trade (where supply and demand meet) https://www.youtube.com/watch?v=0yWsOZgsTSY

Role of Business in the American Economy Role of the Entrepreneur A person who starts a business Begins with an idea for a new product, a new way of producing something, or a better way of providing a service https://www.youtube.com/watch?v=gxo2rGr7Yfg

Types of Businesses Sole Proprietorship Partnership Corporation

Sole Proprietorship Business owned by an individual Most common form of business 70% of businesses in U.S. -- most are small businesses such as restaurants, repair shops, small groceries, etc. Advantages --- freedom, profits belong to owner Disadvantages --- owner bears all responsibility for debts, hard to borrow enough money to start, huge responsibility on owner’s shoulders

Partnership Two or more people share ownership Advantages – more than one person shares the risks and benefits Disadvantage – potential for conflict among owners

Corporation Business that is separate from the people who own it and legally acts as a single person Shares of a corporation are called its stock owned by stockholders Many sell stock to the public to raise funds Advantages --- raise large quantities of money through selling stock, stockholders are not responsible for company’s debt Disadvantages --- more difficult & expensive to start, limited by government regulations

These 10 corporations control almost everything we buy

Labor in the American Economy Industrialization created change 1800s – improvements in farm machinery meant that farms needed fewer workers Rapid industrialization – machines could produce more goods more cheaply than could people making goods by hand Many people became wage laborers – exchanged their labor for payment called wages (worked in mines, factories, workshops)

Labor in the American Economy (early on) Poor working conditions --- many wage laborers had to accept whatever work was available at any wage or starve Business owners took advantage of the situation Paid very low wages Dangerous working conditions Wage laborers, many of them children, worked 6 days a week (12-16 hours a day)

The Rise of Labor Unions Labor union – organizations of workers that seek to improve wages and working conditions & to protect members’ rights Collective bargaining – process by which representatives of unions and business try to reach agreement about wages and working conditions

Labor Unions Weapons of labor Weapons of business Slowdown – workers stay on the job, but do job much more slowly Sit-in strike – stop working, but refuse to leave factory Boycott – urge people to buy employer’s products Strike – workers refuse to work unless employers meet certain demands Use ‘scabs’ to keep factory running (nonunion workers) Hire private police to allow scabs in, break-up union meetings, harass union members Lockout – refuse to let union members enter factory & replace them with scabs Forced workers to sign “yellow-dog contracts” – promise never to join union