1. Basics of Our Economic System
Chapter 14

2. Principles of Our Market Economy
Circular flow – people exchange their labor to buy goods and services from many businesses

3. Supply & Demand

4. Law of Demand
Demand – the amount of a product or service that buyers are willing and able to buy at different prices
When the price of a good or service falls, consumers will buy more of it. As the price of a good or service increases, consumers will buy less.

7. What factors affect demand?
Market size - # of consumers
Consumer tastes – popularity (is it in style?)
Consumer expectations – will it be cheaper later?
Substitutes – can I buy something else?
Complements – if I buy one item I need something to go with it
Income – make more, buy more

8. What factors affect demand?

9. Law of Diminishing Marginal Utility
The benefit for using each additional unit of a good or service during a given time period tends to decline as each is used

10. Law of Diminishing Marginal Utility

11. Law of Supply
Supply --- the amount of a product that producers are willing and able to offer at different prices
Producers are willing to sell more of a good or service at a higher price than they are at a lower price.

14. Supply and Demand
Market price is the price at which buyers and sellers agree to trade (where supply and demand meet)

16. Role of Business in the American Economy
Role of the Entrepreneur
A person who starts a business
Begins with an idea for a new product, a new way of producing something, or a better way of providing a service

17. Types of Businesses
Sole Proprietorship
Partnership
Corporation

18. Sole Proprietorship Business owned by an individual
Most common form of business
70% of businesses in U.S. -- most are small businesses such as restaurants, repair shops, small groceries, etc.
Advantages --- freedom, profits belong to owner
Disadvantages --- owner bears all responsibility for debts, hard to borrow enough money to start, huge responsibility on owner’s shoulders

19. Partnership Two or more people share ownership
Advantages – more than one person shares the risks and benefits
Disadvantage – potential for conflict among owners

20. Corporation
Business that is separate from the people who own it and legally acts as a single person
Shares of a corporation are called its stock owned by stockholders
Many sell stock to the public to raise funds
Advantages --- raise large quantities of money through selling stock, stockholders are not responsible for company’s debt
Disadvantages --- more difficult & expensive to start, limited by government regulations

21. These 10 corporations control almost everything we buy

23. Labor in the American Economy
Industrialization created change
1800s – improvements in farm machinery meant that farms needed fewer workers
Rapid industrialization – machines could produce more goods more cheaply than could people making goods by hand
Many people became wage laborers – exchanged their labor for payment called wages (worked in mines, factories, workshops)

24. Labor in the American Economy (early on)
Poor working conditions ---
many wage laborers had to accept whatever work was available at any wage or starve
Business owners took advantage of the situation
Paid very low wages
Dangerous working conditions
Wage laborers, many of them children, worked 6 days a week (12-16 hours a day)

26. The Rise of Labor Unions
Labor union – organizations of workers that seek to improve wages and working conditions & to protect members’ rights
Collective bargaining – process by which representatives of unions and business try to reach agreement about wages and working conditions

27. Labor Unions Weapons of labor Weapons of business
Slowdown – workers stay on the job, but do job much more slowly
Sit-in strike – stop working, but refuse to leave factory
Boycott – urge people to buy employer’s products
Strike – workers refuse to work unless employers meet certain demands
Use ‘scabs’ to keep factory running (nonunion workers)
Hire private police to allow scabs in, break-up union meetings, harass union members
Lockout – refuse to let union members enter factory & replace them with scabs
Forced workers to sign “yellow-dog contracts” – promise never to join union