1. Unit 7a Economics

2. American Free Market System
Introduction
Challenges in a free market
Supply and Demand
Economic systems
The U.S. economy
Factors of Production
Business organizations

4. The Circular flow of Economics
Resources, goods and services and money flow continuously among households, businesses and the government in the U.S. economy.

5. The Circular flow of Economics Continued…
Individual households own the resources used in production; sell the resources and use the income to purchase products.
Businesses (producers) buy resources used in production; sell the resources and use the income to purchase products. Businesses provide households with income and goods and services.
Governments use tax revenue from individuals and businesses to provide public goods and services.

7. Businesses provide households with income and goods and services.
Households supply businesses with labor (workforce) and payments for goods and services
The government supplies businesses with public goods and services and payments for products purchased.
Households provide the government with labor (workforce) and taxes
Businesses provide the government with taxes and goods and services.
The government provides households with income and public goods and services.

8. Production, Consumption and Distribution
Four Questions all Economic Systems must Address

9. Four Questions All Economic Systems must address…
What is produced?
*Production*
Goods and services must satisfy the consumers wants and desires

10. Four Questions All Economic Systems must address…
HOW should these goods be produced?
*Factors of Production*
Capital
Entrepreneurship
Land
Labor
Combine the factors of production to make or produce the goods and services

12. Four Questions All Economic Systems must address…
For WHOM are the goods and services produced?
*Distribution*
Getting the goods and services from producer to consumer

14. Four Questions All Economic Systems must address…
HOW MANY goods and services should be produced?
*Consumption*
Make enough to have a large profit and still have consumer demand. How many is determined by supply and demand.

16. Supply and Demand

17. Supply and Demand…
Scarcity is the inability to satisfy all wants at the same time due to limited resources
Choices must be made as to what to produce, how much to produce and who will receive what is produced.
PRICE: Mechanism to decide who gets goods and services. The amount that satisfies both producers for profit and consumers for value.

18. Scarcity

19. Choices

20. Price

21. Supply and Demand determine price through their interaction
DEMAND: is the amount of a good or service that consumers are willing and able to buy at a certain price
SUPPLY: is the amount of a good or service that producers are willing and able to sell at a certain price.

22. LAW OF SUPPLY : LAW OF DEMAND: Businesses will provide more products
when they can sell them at higher prices
LAW OF DEMAND:
Buyers will demand more products
when they can buy them at lower prices

23. Incentives Incite or motivate Change economic behavior
Something that spurs someone into action: sale, coupons, etc.

24. Resources, Scarcity & Opportunity Cost

25. Good Anything that can be grown or manufactured (made) Food Clothes
Cars

26. Service
Something a person does for someone else in exchange for money or value.
Doctor
Hairdresser
waiter

27. Resources
Natural
Human
Capital
Combine to make goods and services

28. Our Basic Economic Problem…

29. People have Unlimited Wants
Food
Clothing
Shelter
Schools
Hospitals
Cars
Transportation

30. But Resources are Limited
Land
Soil
Minerals
Fuels
People
Money
Technology

31. Scarcity The inability to satisfy all wants at the same time;
the NEEDS are greater than the RESOURCES

32. Since resources are LIMITED consumers and producers must make CHOICES
CHOICE: selecting from a set of alternatives
OPPORTUNITY COST: what is given up when the choice is made.

33. *Scarcity forces us to choose which needs and wants to satisfy with available resources. *Scarcity affects decisions concerning what and how much to produce, how goods and services will be produced and who will get what is produced

34. Production: (sellers)
*Combining resources to make goods and services.
*Available resources and consumer preference determine what is produced
Consumption (buyers)
*Using goods and services
*Consumer preference and price determine what is purchased

35. SELLER
Buyer

36. Challenges in a Free Market: Terms

37. Scarcity In English You can't have everything you want.
Lessons for life
Acceptance of scarcity will help you make more reasoned choices

38. Alternatives In English Different options from which you can choose
Lessons for Life
There are many different ways to allocate resources and to solve problems
Yes….these are generic converse!

39. Choice
In English
Because you can't have everything you want, you have to make choices from a list of alternatives
Lessons for life
When policy-makers decide on a particular resource allocation, recognize that a choice had to be made due to scarcity. You may not like the alternative chosen, you may question the choice, but the villain is scarcity

40. Trade-off’s In English
Choices involve giving up something to get something. All choices have consequences, both positive and negative
Lessons for Life
You are responsible for the consequences of your choices. Since you make choices, you can't be a victim.

41. Opportunity Cost In English What is given up when a choice is made
Lessons for Life
All choices have opportunity costs. A good idea is only a good idea if its value is greater than the value of its opportunity cost. Voters must always identify the opportunity cost of a particular policy

42. Economic Systems

43. Command Economy
The central government makes decisions and determines how resources will be used.
The central government owns property and resources.
Businesses are not run for profit.
Businesses are not run for profit.
No competition
Lack of consumer choice
The government sets the prices of goods and services.
China, North Korea, Cuba

45. Mixed Economy Most common type of economic system
Government and individuals share the decision making process
Individuals and businesses make decisions for the private sector
Individuals own the means of production
Government makes plans for the public sector
Government guides and regulates production of goods and services offered.
A greater government role than in a free market economy
Most effective economy for providing goods and services
U.S. and most Western European countries are mixed economies

47. Free Market Economy Also known as capitalism or free enterprise
Private ownership of property and resources (owned by individuals)
Individuals and businesses make profits
Individuals and businesses compete
Economic decisions are made by supply and demand
Profit is a motivator for productivity
No government involvement
Consumer sovereignty: buyers determine what is produced

48. Money left over after all business expenses have been paid.
Rivalry between businesses for the same customers; results in better quality
Money left over after all business expenses have been paid.
COMPETITION
PROFIT
Individuals can own the means of production & property without undue government interference
The U.S. economy is
a MIXED
ECONOMY
FREE
MARKETS
PRIVATE
PROPERTY
Markets are allowed to operate without undue interference from the government. Money, goods and services flow continuously among individual households, businesses and the government
Consumers determine what goods and services are produced by what they buy
CONSUMER
SOVEREIGNTY

49. anything that goes into the making of a good or service
Factors of Production
anything that goes into the making of a good or service

50. Business owner and risk taker combines the factors of production
Capital
Ex: tools, machinery, money and technology
Entrepreneur
Business owner and risk taker combines the factors of production

51. Factors of production cont…
Land
Natural Resources
Labor
Workers and their time and energy

52. Business Organizations
The 15 million businesses in the U.S. fall into three categories: sole proprietorships, owned by a single individual,
partnerships, with more than one owner sharing the risks and profits and corporations, owned by their stockholders.

53. Sole Proprietorship 1 owner The owner takes all the risks
Supplies capital, hires help, pays taxes
The owner makes all the profits
The owner is solely responsible for losses

54. Partnership More than one owner (2+)
Risks are shared amongst the owners
Profits are shared amongst the owners
Often more successful than sole proprietorships
Responsibilities are shared

55. Corporation Owned by stockholders
Authorized to act as a legal person regardless of the number of owners
Owners share the profits
Liability is limited to investment (you can only loose as much as you put in)
Raise money by selling stocks
No one is responsible for corporation’s debt if it fails