Basics of our Economic System Chapter 14

Expanding the Circular Flow  People exchange their labor to buy goods and services from many businesses  Producers need land and the raw materials on the land  Producers also need capital, which includes tools and machines used in production  Rent- payment for the use of land and capital  Interest- is the payment for the use of capital

Supply and Demand  Buyers and sellers exchange goods and services through a market  Markets determine how much will be produced in a free-enterprise economy  Households (people living in the same residence) own the factors of production and consume goods and services, called factor markets  Business use resources provided by households to make and sell products, called product markets  Individuals are free to make choices about how to use resources to satisfy needs

The Law of Demand  Demand- is the amount of a product of service that buyers are willing and able to buy a different prices  Higher Price >>> Lower Demand  Lower Price >>> Higher Demand

The Law of Supply  Supply- the amount of a product that producers are willing and able to offer at different prices  Higher Price >>> Higher Supply  Lower Price >>> Lower Supply

Market Price- the price at which buyers and sellers agree

The Role of the Entrepreneur  Entrepreneur- person who starts a business  Risk is very high when a person starts oa business  Profit will be the total revenue earned minus the cost of the resources it uses

Payments for Resources

How Businesses are Owned  The Sole Proprietorship- business owned by an individual  Advantages- freedom to decide how to run business, profits are not split, personal satisfaction  Disadvantages- bears responsibility for all debt, hard for one owner to borrow enough money to expand, difficult to handle responsibilities  The Partnership- business in which two or more people share ownership  Advantages and disadvantages are similar to sole proprietorship, but more than one person shares the risks and benefits  One disadvantage is the possibility of serious differences arising between partners  The Corporation- business that is separate from the people who own it and legally acts as a single person  The shares of ownership in a corporation are called stock  People who buy stock are called stockholders

Supply and Demand  Supply Increases > Price Decreases > Quantity increases  Supply Decreases > Price increases > Quantity decreases  Demand Increases > Price increases > Quantity increases  Demand Decreases > Price decreases > Quantity decreases  If the demand decreases, and the supply remains the same, there will be a surplus. This will mean the price will go down  If the supply decreases, and the demand remains the same, there will be a shortage, and the price will increase

Example: Burrito Sales  Interactive Graph of Burrito Sales at Cafe Chico Interactive Graph of Burrito Sales at Cafe Chico  Cafe Chico Story's Cafe Chico Story's

Market Economies  Diminishing Marginal Utility-A psychological generalization that the perceived value of, or satisfaction gained from, a good to a consumer declines with each additional unit acquired or consume  Substitutes-A product or service that satisfies the need of a consumer that another product or service fulfills  Examples:  Pepsi for Coke  Tide for Gain  Complements-A good or service that is used in conjunction with another good or service. Usually, the complementary good has little to no value when consumed alone but, when combined with another good or service, it adds to the overall value of the offering. Also, good tends to have more value when paired with a complement than it does by itself.  For example, if the price of hot dogs rises so much that people stop consuming them, this will also cause a decrease in demand for hot dog buns.

The Growth of Wage Labor  Most Americans were farmers, skilled craftspeople in Americas early days  Craftspeople generally owned their own capital—the tool of their craft  Improvements in farm machinery meant that farms needed fewer worker  New machinery and manufacturing methods led to rapid industrialization

The Rise of Labor Unions  Individual workers had litter power over wages and working conditions  Labor unions- organizations of workers that seek to improve wages and working conditions and to protect members’ rights  The Noble Order of the Knights or Labor  The American Federation of Labor  Collective bargaining- process by which representatives of the unions and business try to reach agreement about wages and working conditions

The Weapons of Labor and Business  Labor:  Boycott- refuse to buy (an employer’s products)  Strike- workers refuse to work unless employers meet certain demands  Slowdowns  Boycotts  Demonstrations  Sin-ins  Business/Employee:  Strikebreakers  Security Forces  Lockouts  Yellow-dog Contracts  Blacklists

Labor Unions Since 1930  National Relations Act, or Wagner Act (1935)- Required employers to bargain with unions that represent a majority of a firm’s employees and outlawed several methods that business owners had used to weaken unions  Taft-Hartley Act (1947) and Landrum-Griffin Act (1959)- put limits on the powers of unions and union leaders  Labor unions from the AFL formed the Committee of Industrial Organizations in 1935 and later became rivals  In 1955 they formed the AFL-CIO  Today is the most powerful organized labor union

Practice  Page 381 complete the Section 1 assessment (questions 1-3)