Chapter 5 The U.S. Economic System

5.1 What is Economics? Economics= how we use scasre resources to produce and distribute scasre resources to produce and distribute goods and services that satisfy people’s wants and needs {Study of choices about using resources}

Macroeconomics= on a national and global scale, concerned with the economic decisions made by governments Microeconomics= economic decisions made by individual people and businesses

Economic Systems The way a society uses resources to satisfy its people’s needs and wants Economic resources- money, time, skills, tools. Scarcity = trying to satisfy unlimited wants with limited resources Opportunity cost= what we give up in order to something else.

3 Basic Questions 1. What will be produced? 2. How will they be produced? 3. Who should share the goods and services that are produced? How an economy answers these questions determined what kind of economic system

Types of Economic Systems 1. Traditional Economy = decisions about what to produce , how and for whom are based on traditional customs and beliefs. People hunt, fish etc as their ancestors did Usually poor

2. Command Economy = decisions about what to produces, how and for whom are decided by government Also called controlled government The people have nothing to say about it Communist countries

3. Market Economy= decisions are made by individuals acting in their own self interest Capitalist system 4. Mixed Economy= combination of command and market {most countries are this type of system}

The U.S. Economic System The economic goals of US are….. Growth Efficiency Stability Justice Security Charaterics Private Property Freedom of Choice Free Enterprise Limited government control

5.2 Producers and Consumers The Profit Motive= earnings after all costs of production have been paid Factors of Production= types of resources needed to produce goods and services Land Labor Capital Entrepreneurship Technology

Productivity= a measure of the efficiency with which goods and services can be produced Can be increased through technology and specialization {focus on a certain thing}

Business Organizations Sole Proprietorship= owned and controlled by 1 person Partnership= owned by 2 or more people Corporation= organization that is owned by people who have shares of stock known as shareholders Discuss Pros and Cons of each

Prices in a Free Market Demand= the quantity of a good or service that consumers are WILLING and ABLE to buy at a given price Law of Demand= when price goes down, demand goes up, etc. etc. Supply= quantity of a good or service that producers are WILLING and ABLE to sell at a certain price Law of Supply= when price goes up, supply goes up Interaction of demand and supply – pg 136-137

Production Costs Affects price of product – read page 137 Competition = rivalry between 2 or more businesses that offer similar goods or services Businesses want to lower prices to get business but also want to make a profit

Consumers in the Marketplace Consumer sovereignty= controlling the influence of consumers Boycott= organized refusal to purchase certain goods or services

5.3 The Government’s Roles Levels of Government Federal, State, Local Provide Public Goods National defense, police, fire, education, public transportation, parks, highways

Redistributing income Social Security= an insurance program that is sponsored by federal government Paid for by tax on earners wages Based on previous earnings Retirement, survivor’s, disability Unemployment Insurance

Public Assistance Programs (pg 142-143) Temporary Assistance to Needy Families ( TANF) Supplemental Security Income (SSI) Food Stamps WIC Free or Reduced school lunches Medicaid State Children Health Insurance Housing Programs

Regulating Economic Activity Protecting the environment Protecting Consumers Protecting Workers Promoting Competition Monopoly= a single company controls the supply of goods or services Antitrust laws= regulate unfair business practices that reduce competition

Ensuring Economic Stability Fiscal policy= adjusting its policies about taxing and spending Monetary policy= regulating interest rates and money supply

5.4 Principles of Taxation Purpose of Taxation Tax= required payment to the government To fund public goods and services To influence behavior To stabilize economy To redistribute income

Taxes people pay Income tax= tax on money you earn Social Security Tax= pay for SS program Sales Tax= what consumers pay on good and services bought Excise tax- on manufacture or sale of certain goods and services Property tax- tax on the value of your property

Estate and Gift tax Business or license tax Custom duties and tariffs See 5-16 on page 149 Read Taxes and Fairness as class on pg 149-150

Relationship of Taxes Proportional Tax= same % out of everyone's income Progressive Tax= larger % of income of high-income people than low income people Regressive tax = takes a larger % of the income of low income people than that of high income people