Chapter 2: Economics Lesson 5 The Market Economy

The student will interpret economic issues as expressed in maps, tables, diagrams, and charts (i.e., automobile sales, unemployment rates, or airplane production). interpret economic issues as expressed in maps, tables, diagrams, and charts (i.e., automobile sales, unemployment rates, or airplane production).

Overall, most free market economies work well.

Consumers make decisions on what to buy and how much they are willing to pay. In turn, producers decide what products they will make, how they will make them, and how much to sell them for.

European Settlers The first people from Europe to settle in what would become the United States came for two main reasons. The first people from Europe to settle in what would become the United States came for two main reasons. One reason was to enjoy religious freedom. One reason was to enjoy religious freedom. The other reason was to pursue economic opportunities. The other reason was to pursue economic opportunities.

These settlers came from England and other European countries. In those countries, it was not easy for people to improve their lives.

European settlers in North America wanted more opportunities. These colonists wanted to live in a place where their hard work, intelligence, and creativity would give them a better life.

The early settlers first started farms to grow the food they needed. But soon, they began to develop businesses and trade, such as fishing, lumber, tobacco, fur trading, cattle raising, and crafts.

Over time, the American colonies prospered. People throughout Europe heard of the opportunities and religious freedom available in the new land. Soon, they, too, immigrated to America, in search of a better life.

At first, the newcomers settled in and around the East Coast. As towns and farms grew, competition for land and resources increased.

As a result, people began to move west, where land and natural resources were less expensive and more abundant. The United States quickly grew as more immigrants came.

In time, the growing nation would stretch from the Atlantic Ocean to the Pacific Ocean.

Economic Forces Several forces operate in a market economy. Several forces operate in a market economy. These forces include supply and demand, pursuit of profits, pricing, competition, and the spending and earning of income. In the United States, individual people, businesses, and the government all take part in activities that operate according to these forces. These forces include supply and demand, pursuit of profits, pricing, competition, and the spending and earning of income. In the United States, individual people, businesses, and the government all take part in activities that operate according to these forces.

Profit Consumers and producers affect one another through the principle of supply and demand. Businesses want to create a demand for their products so that consumers want to buy them. Consumers and producers affect one another through the principle of supply and demand. Businesses want to create a demand for their products so that consumers want to buy them. This helps the businesses make a profit. This helps the businesses make a profit. A profit is the amount of money a business can earn above the amount it must spend to make its products. A profit is the amount of money a business can earn above the amount it must spend to make its products.

Profit For example, a company that makes fresh orange juice must buy oranges and containers to put the orange juice in. It must also operate a factory to squeeze the oranges and put the juice into the containers. It has to pay workers to operate the factory. Finally, it must pay to transport the bottles of orange juice to stores. For example, a company that makes fresh orange juice must buy oranges and containers to put the orange juice in. It must also operate a factory to squeeze the oranges and put the juice into the containers. It has to pay workers to operate the factory. Finally, it must pay to transport the bottles of orange juice to stores.

Profit All of these activities cost money. All of these activities cost money. A business needs to be able to sell its orange juice for more money that it costs to make it. A business needs to be able to sell its orange juice for more money that it costs to make it. It can use the profits to create new businesses or to expand. This helps the economy grow. It can use the profits to create new businesses or to expand. This helps the economy grow.

Competition Competition is another economic force. Competition is another economic force. Competition is good for an economy. Competition is good for an economy. If only one company in the entire country made orange juice, anyone who wanted to drink orange juice would have to buy it from that company. If consumers had a strong demand for orange juice, the company might be able to charge as much as they wanted for it. If only one company in the entire country made orange juice, anyone who wanted to drink orange juice would have to buy it from that company. If consumers had a strong demand for orange juice, the company might be able to charge as much as they wanted for it.

Competition Or they might find ways to make better-tasting orange juice. In this way, competition keeps prices at a fair level. It also helps keep the quality of products high. Or they might find ways to make better-tasting orange juice. In this way, competition keeps prices at a fair level. It also helps keep the quality of products high.

Competition The government makes laws and rules to make sure that businesses compete fairly. The government makes laws and rules to make sure that businesses compete fairly. They have passed laws to make it illegal for any one company to control a type of business. Such controls are designed to protect competition so that the economy stays healthy and grows. They have passed laws to make it illegal for any one company to control a type of business. Such controls are designed to protect competition so that the economy stays healthy and grows.

Expressing Economic Issues As you’ve learned, the study of economics involves a lot of different factors. These factors include supply and demand, consumers and producers, pricing, and competition. As you’ve learned, the study of economics involves a lot of different factors. These factors include supply and demand, consumers and producers, pricing, and competition. All of these factors relate to one another in sometimes complicated ways. All of these factors relate to one another in sometimes complicated ways.

Studying economics also involves comparing numbers – for example, the cost of doing business or the price of goods – and how they change over time. The relationships among economic factors are often clearer when they are expressed in the form of graphs, diagrams, maps, and charts.

Graphs Drawings that show how different numbers compare to one another are called graphs. Drawings that show how different numbers compare to one another are called graphs. They can also show how numbers change over time. They can also show how numbers change over time. Graphs are very useful in economics. Graphs are very useful in economics.

Line Graphs A line graph is made with a vertical, or up-and- down, axis, or scale, and a horizontal, or left-to- right, axis. A line graph is made with a vertical, or up-and- down, axis, or scale, and a horizontal, or left-to- right, axis. A line graph can show the production or price of a product over time. A line graph can show the production or price of a product over time. It can show the relationship between price and the amount of something sold. It can show the relationship between price and the amount of something sold. Line graphs can be used to show many other kinds of economic information as well. Line graphs can be used to show many other kinds of economic information as well.

Circle Graphs A circle graph, or pie chart, as it is sometimes called, shows how the parts of something relate to the whole. It looks like a circle that is divided into wedges. A circle graph, or pie chart, as it is sometimes called, shows how the parts of something relate to the whole. It looks like a circle that is divided into wedges. In economics, a circle graph can show what a family spends its total income on. In economics, a circle graph can show what a family spends its total income on. It can also show the main products of a company. It can also show the main products of a company.

Circle Graphs

Bar Graphs A bar graph expresses amount with bars of different lengths. A bar graph expresses amount with bars of different lengths. A bar graph is often used to compare how the amount of something changes over time. A bar graph is often used to compare how the amount of something changes over time. Bar graphs are used to compare amounts of different things. Bar graphs are used to compare amounts of different things.

Bar Graphs

Maps Maps are used in economics to show where economic activities take place. Maps are used in economics to show where economic activities take place. They are also useful in comparing economic conditions in various places. They are also useful in comparing economic conditions in various places. Maps can show where products are produced and where they are used. Maps can show where products are produced and where they are used. They can also show economic facts such as incomes, tax rates, and spending in various places. They can also show economic facts such as incomes, tax rates, and spending in various places.

Maps

Diagrams A diagram is a drawing that shows important parts of something. It may use pictures, lines, symbols, and words to show clearly what a thing is or how it works. A diagram is a drawing that shows important parts of something. It may use pictures, lines, symbols, and words to show clearly what a thing is or how it works. In economics, a diagram can be used to show how a product is made and sold, how countries trade with one another, or many other processes. In economics, a diagram can be used to show how a product is made and sold, how countries trade with one another, or many other processes.

Show What You Know With a partner, make up a business plan for a lemonade stand. Decide how much profit you want to make on your lemonade. With a partner, make up a business plan for a lemonade stand. Decide how much profit you want to make on your lemonade. Say it costs you ten cents to make 8 ounces of lemonade. You also have to buy paper cups that cost a penny each. Say it costs you ten cents to make 8 ounces of lemonade. You also have to buy paper cups that cost a penny each. How much do you think you should charge for each glass so that you make a profit? Will your customers be willing to pay what you want to charge? How much do you think you should charge for each glass so that you make a profit? Will your customers be willing to pay what you want to charge?

1. Which of the following statements about why the government passes laws about business is not true?

A.Laws protect the ability of businesses to compete. B. Laws can help one company to control a type of business. C. Laws help keep products safe for consumers. D. Laws ensure competition among different businesses.

1. Which of the following statements about why the government passes laws about business is not true? B. Laws can help one company to control a type of business. B. Laws can help one company to control a type of business.

2. Why did the first settlers come to the United States? A. They had products to sell and were looking for new markets. A. They had products to sell and were looking for new markets. B. They wanted more economic opportunities. B. They wanted more economic opportunities. C. There was no land for sale in Europe. C. There was no land for sale in Europe. D. The cost of goods and services was too high in England. D. The cost of goods and services was too high in England.

2. Why did the first settlers come to the United States? B. They wanted more economic opportunities. B. They wanted more economic opportunities.

3. What information does the vertical axis of the line graph give?

A. The mileage on the car A. The mileage on the car B. The years for which the information is collected B. The years for which the information is collected C. The title of the graph C. The title of the graph D. The value of the car D. The value of the car

3. What information does the vertical axis of the line graph give? D. the value of the car D. the value of the car