Part 5—Job Satisfaction Chapter 21 Succeeding in Our Economic System

Chapter Objectives Describe the economic system of the United States. Compare the three forms of business ownership. Describe the responsibilities involved in managing a business.

Key Concepts The free enterprise system of the United States is based on six major factors: private ownership and control of productive resources, a free market, the profit motive, supply and demand, competition, and limited government involvement. Business can be organized as proprietorships, partnerships, or corporations. Businesses may have tall or flat management structures. Businesses must be well managed to succeed.

Succeeding in Our Economic System The United States developed into a strong industrial nation because it had: Natural resources. A patent system. Skilled labor. Good management. Capital for investments. Free enterprise. Capital: Possessions and money used to increase business.

The Free Enterprise System Free enterprise system: A system that allows people the freedom to make their own economic decisions. Also called consumer economy, market economy, profit system, or capitalism. continued

The Free Enterprise System Free enterprise is based on six factors: Private ownership and control of productive resources. A free market. The profit motive. Supply and demand. Competition. Limited government involvement.

Private Ownership and Control of Productive Resources Productive resources: Resources such as labor, land, capital, and equipment that can be used to produce and provide goods and services. Needs: The basics a person must have to live. Wants: The items a person would like to have, but can live without.

Free Market A free market gives you the right to decide how and where to earn, spend, save, and invest your money. Companies make a profit when demand for their products is high. Losses usually occur with low demand. After a loss, a company will try to find ways to become profitable again.

Profit Motive Profit: The money left after costs of production are subtracted. Making a profit is the main reason people own businesses. Without profit, people would not want to work or invest money.

Supply and Demand Supply: The amount of goods and services on hand for sale. Demand: The amount of goods and services bought by consumers. The relationship between supply and demand affects the price of goods and services. continued

Supply and Demand High Demand + Low Supply = High Price Low Demand + High Supply = Low Price

Competition Through competition, businesses are encouraged to produce quality goods and services at low prices. Reasons prices are high without competition: Businesses can charge high prices without the fear of losing customers. The company sees little need to reduce production costs.

Limited Government Involvement Limited government involvement is necessary to keep the free enterprise system free and fair. Government enforces laws to promote economic growth and stability and protect consumers from unsafe and unfair business practices. Monopoly: A single company that controls the entire supply of a product or service.

How Businesses Are Organized Three forms of business ownership: Proprietorship. Partnership. Corporation. All businesses operate on the same basic principle: they must earn a profit to stay in business.

Proprietorship Proprietorship: A business with only one owner. The owner takes all the risks and assumes all the profits or losses. Most proprietorships are small; however, a few are multimillion dollar businesses.

Partnership Partnership: A business owned and run by two or more people. The work, profits, and debts are shared. Advantages: More money to finance the business. Skills and experience of two people. Disadvantages: Possibility of disagreements. One partner feels they are assuming more work than the other. continued

Partnership In a limited partnership, one partner invests in the business but does not work in it. Limited, or silent, partners receive a percentage of the profit. If a business fails, the limited partner is only responsible for debts up to the amount of their investment.

Corporation Corporation: A business owned by many people. Sales of stock provide capital for starting the business. Stockholders have limited liability and are only responsible for debts up to the amount of their investment. Stockholders usually have little or no input in the decisions that are made.

How Businesses Are Structured Your job responsibilities may be influenced by the company’s management structure. The two types of management structures are tall (vertical) and flat (horizontal). Organization chart: A chart that shows an organization’s internal structure.

Tall Structure Low-level workers are removed from top managers. Jobs are more specialized. Responsibilities are narrower.

Flat Structure Workers usually have closer contact with management. Employees have a broad range of skills and greater responsibility. Emphasis is on teamwork.

Business Management Managing a business involves: Planning – setting goals to make the business more successful and profitable. Staffing – hiring workers. Directing – overseeing the manufacture of goods. Marketing – promoting, selling, and distributing. Financing – keeping records of accounts, collecting payments, handling payroll, and paying taxes. Workers with the most experience are usually promoted to positions in management.

Thinking Back What is a free enterprise system? Compare the three forms of business ownership. Explain the relationship between supply and demand. Describe the responsibilities involved in managing a business.