Analyze Features of the US Economic System Goal 8 Analyze Features of the US Economic System

Comparing Economic Systems Three Fundamental Questions: 1) What will be produced? 2) How will it be produced? 3) For whom will it be produced? Four Economic Systems: 1) Traditional 2) Command 3) Market 4) Mixed

Free Enterprise System Driven by: 1) Voluntary Exchange (individuals and businesses freely choose to exchange goods) 2) Government – enforces laws to keep system going (gives out patents and copyrights) through regulation

Free Enterprise System – Good and Bad Good Effects: 1) Private Property (people own their own land, not gov’t) 2) Productivity and Efficiency increase 3) Invention and Innovations are more likely Bad Effects: 1) Less security (lack of government security) 2) Full Employment not likely (no guarantee to get a job) 3) Lack of Equity (inevitably some are helped and others are hurt by this economy)

Circular Flow Diagram Household and Firm Product Market and Factor Market Government Role

Supply Law of Supply (As price increases, Quantity increases) Supply Schedule and Supply Curve Profit Motive means that producers will produce more things if they can get more profit for it

Shifting Supply Effect of Input Costs Technology Subsidies (always increase) Taxes (always decrease) Regulations and Deregulations Future Price Expectations Number of Suppliers

Demand Law of Demand (As price increases, Quantity decreases) Demand Schedule and Demand Curve Consumers want less of a product if the price of that product goes up

Shifting Demand Personal Disposable Income Consumer Expectations Size of Population Consumer Tastes (New Taste in Products) Price of Complement Price of Substitute

Supply and Demand Together When Quantity Supplied is greater than Quantity Demanded, there is a surplus and a price floor (minimum wage) When Quantity Demanded is greater than Quantity Supplied there is a shortage and a price ceiling (rent control)

Graphs of Price Ceiling and Price Floor

Market Competition Four Factors for Perfect Competition: Large numbers of buyers and sellers Products have the same quality No major barriers to enter the market Free Exchange of Prices

Types of Market Competition Perfect Competition – many firms, no variety, no barriers, no price control by business Monopolistic Competition – many firms, some variety, low barriers, little price control Oligopoly – few firms, some variety, high barriers, high price control Monopoly – one firm, no variety, complete barriers, complete price control

Types of Monopolies Conglomerates – large companies that consist of several businesses (most of which are unrelated) Vertical Merger – company buys a company that produces materials for the original company (Firestone Tires bought by Toyota) Horizontal Merger – company buys a competing company (Honda bought by Toyota) MNC (Multinational Corporation) – conglomerates that include businesses in different countries Trusts – large monopolies (anti-trust laws ban these)

Types of Businesses Sole Proprietorship – has limited life and unlimited liability, owned by one person Partnership – owned by two or more people, sometimes as cooperatives Corporation – owned by stockholders, has limited liability and unlimited life but also double taxation Franchise – purchasing local rights to a trademark corporation, requires paying fees to original company Nonprofit – organization that does not make profit on selling goods SBA (Small Business Administration) – helps sole proprietorships and partnerships grow

Labor Unions History 1) National Labor Relations Act Types 1) Craft – skilled workers only 2) Industrial – both skilled and unskilled 3) Open – allow all workers 4) Closed – allows just workers in labor unions History 1) National Labor Relations Act 2) Fair Labor Standards Act 3) Social Security Act 4) Taft-Hartley Act

Solving Labor Disputes Labor Unions can: 1) Collectively Bargain 2) Use a mediator 3) Use an arbitrator 4) Use a strike (includes picketing) Businesses can: 1) Do nothing (concede to the union) 2) Use a lockout 3) Use an injunction

Money History Barter System – trade goods that one possesses (solved by medium of exchange) Creation of currency (coins) Use of gold standard (representative money) Use of legal tender (fiat money)

Types of Money and Institutions Savings Account Checking Account Debit Card Credit Card Certificate of Deposits (CDs) Commercial Banking Credit Unions Savings and Loan Associations Stocks and Mutual Funds Bonds (savings, treasury, corporate, junk) Insurance (life, health, liability) Pension Funds FDIC Federal Reserve Bank Collateral (objects used as money)