The Economics System at work C HAPTER 17 S EC. 1

L EARNING T ARGET #1 I can describe the different types of economic systems used around the world

E CONOMIC S YSTEMS  3 basic economic systems  Traditional  Command  Market  Most countries use a mix of these 3 to meet their citizens demands

T RADITIONAL E CONOMY  Economic decisions are based on how the activity was done in the past (traditionally)  People make everything that they need  Ex. People grow their own food, make their own goods or use a barter system to trade

C OMMAND E CONOMY  Government makes all economic decisions, owns/controls all capital, tools, & production equip.  Tells workers what they can produce, how much they can produce, and how much they can charge for it  Ex. North Korea, Cuba

(F REE ) M ARKET E CONOMY  Economic decisions are made by individuals looking out for their own best interest  People can start their own business to make/sell any legal product that they choose and set their own price  Companies are free to compete with one another

L IFE IN A MARKET E CONOMY  People have the ability to pursue a profit.  (def.) – the money a business has left after it has paid its expenses  In order to provide a good/service & make a profit you must have resources  Scarcity – the lack of a particular resource  Lack of a specific resource tends to make the price rise.

 

S UPPLY & D EMAND  Law of supply – business will produce more products when they can sell them at higher prices.  Ex. Nintendo manufactures more wii’s after Christmas sales go through the roof.  Law of demand – buyers will demand a greater quantity (more) of a good when its price is low. As the price falls, demand rises.  Ex. You stock up on paper/pencils at the beginning of the school year when they are cheapest.

 Free-enterprise – business operate with little interference from the government.  Competition between business is important!  Leads to… Improved products New innovations Cheaper products  Our government protects our ideas so no one else can take credit for them  Keeps people inventing, creating, improving, etc.  Patent – exclusive rights of an individual to make/sell a product for a certain number of years  Copyright – exclusive right to publish/sell a piece of writing, music, or art

 Capitalism (def) - economics system where the productive resources are privately owned  Monopoly (def) – only one company is selling a product or providing a service  Highly discouraged in the U.S.

Business Organizations C HAPTER 17 S EC. 2

B USINESS O RGANIZATIONS Advantages: You are your own boss Decide hours Determine business operation Take all the profits Disadvantages: Owner pays ALL start- up costs Must be able to pay employees Responsible for all debts  Sole Proprietorship  A small business owned by one person  18 million in the U.S.

B USINESS O RGANIZATIONS Advantages: More money to invest in business Decide hours Determine business operation Risk is shared Disadvantages: Owners pays ALL start-up costs Disputes can lead to business problems Responsible for all debts  Partnership  Where two or more people share the costs, responsibilities, etc. of ownership

B USINESS O RGANIZATIONS  Corporation  Most of the countries large business that is a permanent organization  Raise money by selling stocks  Shareholders receive a portion of the profits in relation to their holdings.  States issue charters of incorporation, and corporation obeys regulations.  Stockholders elect directors and vote on changes.  Board of directors selects corporate officers.  No one is responsible for a corporation’s debt if it fails.

N ON -P ROFIT O RGANIZATIONS  Provide goods and services without seeking a profit  Charities, scientific research associations, organizations dedicated to cultural and educational programs  Rely on donations from individuals to operate  Are not taxed by the government

Making Business Decisions C HAPTER 17 S EC. 3

T HE F OUR F ACTORS OF P RODUCTION  Natural resources  Capital  Labor  Entrepreneurship

 Natural resources—provide physical space and raw materials for business  Capital—the money needed to start a business  Labor—the human effort required for the business  Entrepreneurship—initiative, decisions, risks, and management involved in a business

H OW GOVERNMENT REGULATES BUSINESS :  Protects small businesses from big corporations (monopolies)  Protects workers’ health and safety  Prevents pollution  Protects consumers from harmful products and practices  Ensures equal opportunity employment

E CONOMIC F REEDOMS IN THE U.S. M ARKET E CONOMY  Freedom to buy and sell—government role is limited  Freedom to compete—producers make what they think the consumer will buy  Freedom to earn a living—citizens free to seek the best jobs they can get  Freedom to earn a profit—the profit motive is essential to the system  Freedom to own property—private ownership makes the free market possible