The American Economy

3 Basic Economic Questions WHAT TO PRODUCE?! HOW TO PRODUCE?! FOR WHOM TO PRODUCE?!

ECONOMIC RESOURCES

FACTORS of PRODUCTION Natural Human/ Labor Capital Entrepreneur

Resources NATURAL HUMAN CAPITAL Money Labor WATER tools Mgt. LAND machinery building Labor Mgt. WATER LAND TREES OIL Etc.

Gross Domestic Product

Gross Domestic Product Total value (in $) of all the final goods and services produced in a country during a single year used goods NOT included !!

Measuring GDP Multiply the quantity of each good by its price, then add the dollar amount. GDP is a measure of standard of living-- the quality of life based on the possession of necessities and luxuries that make lie easier

ECONOMIC ACTIVITY & PRODUCTIVITY

Circular Flow of Economic Activity

Consumer Sector Consumers earn $ in the FACTOR MARKET Wages are given in exchange for labor

Business Sector Consumers spend $ in PRODUCT MARKETS Business Sector receives payments for the goods & services spent in Product Market Businesses use this $ to pay for resources

Government Sector Made of all 3 levels of government: LOCAL, STATE, & NATIONAL Government Sector produces goods & services: national defense, health, education, transportation & housing ---- therefore receives revenue– however, most revenue comes from taxes Government sector also acts as a consumer

Foreign Sector Sell to AND buy from other nations Value of products bought and sold tends to offset each other Results in less than 4% of nation’s GDP

PRODUCTIVITY & ECONOMIC GROWTH PRODUCTIVITY measure of amount of output produced by given amount of inputs in a specific period of time Goes up when more can be produced in same amount of time need to use resources efficiently SPECIALIZATION Concentration on production of certain goods or services Depend on others for other items needed as consumers Improves productivity HUMAN CAPITAL The sum of abilities, skills, and motivation of people Gov’t and business invest in training, healthcare and employee motivation to increase productivity Employers get better products and better profits Employees get higher pay, better jobs, and job satisfaction PRODUCTIVITY & ECONOMIC GROWTH DIVISION OF LABOR Breaking a job down into smaller tasks Skill development ECONOMIC INTERDEPENDENCE Mutual reliance for goods and services What is going on in another country could affect our economy

CAPITALISM & FREE ENTERPRISE

FEATURES of CAPITALISM MARKETS Set prices Connect the sectors of the economy DOLLAR VOTE consumer sovereignty ECONOMIC FREEDOM C-H-O-I-C-E Accept consequences of decisions

FEATURES of CAPITALISM (cont’d) PRIVATE PROPERTY RIGHTS Freedom to own and use our own property as we choose Provides incentive: to work, save, invest, maintain COMPETITION Keeps prices low and quality of goods high Rewards efficient producers Forces others out

FEATURES of CAPITALISM (cont’d) THE PROFIT MOTIVE The hope for financial gain Profit= amount left over after all costs of production have been paid VOLUNTARY EXCHANGE Buyers and sellers willingly exchanging in market transactions Who benefits? BOTH!!

SPREAD of CAPITALISM Adam Smith 1776, Wealth of Nations Described life and trade in England Described basic principles of economics

SPREAD of CAPITALISM (cont’d) LAISSEZ-FAIRE French, “to let alone” Hands off approach to business Government should NOT interfere with the market place A strictly limited role for government in the economy

The ECONOMY & YOU

CONSUMER RIGHTS & RESPONSIBILITIES PROTECTING CONSUMER RIGHTS caveat emptor – let the buyer beware! Consumerism Fair Packaging and Labeling Act Pure Food and Drug Act 1906 Better Business Bureau

CONSUMER RIGHTS & RESPONSIBILITIES (cont’d) CONSUMER BILL OF RIGHTS (Started under JFK, re-addressed under Nixon) Right to a SAFE PRODUCT Right to BE INFORMED Right to CHOOSE Right to BE HEARD Right to REDRESS

CONSUMER RIGHTS & RESPONSIBILITIES (CONT’D) CONSUMER RESPONSIBILTIES REPORT the problem IMMEDIATELY KEEP records of efforts to resolve problem EXHIBIT ethical behavior

YOUR ROLE as a CONSUMER Decision Making Uses of Income Disposable Income Uses of Income What are your goals? Discretionary Income YOUR ROLE as a CONSUMER Deciding about your Savings Saving for the Future Saving Saving Regularly Interest