1. Chapter 5
The U.S. Economic System

2. 5.1 What is Economics?
Economics= how we use scasre resources to produce and distribute scasre resources to produce and distribute goods and services that satisfy people’s wants and needs
{Study of choices about using resources}

3. Macroeconomics= on a national and global scale, concerned with the economic decisions made by governments
Microeconomics= economic decisions made by individual people and businesses

4. Economic Systems
The way a society uses resources to satisfy its people’s needs and wants
Economic resources- money, time, skills, tools.
Scarcity = trying to satisfy unlimited wants with limited resources
Opportunity cost= what we give up in order to something else.

5. 3 Basic Questions 1. What will be produced?
2. How will they be produced?
3. Who should share the goods and services that are produced?
How an economy answers these questions determined what kind of economic system

6. Types of Economic Systems
1. Traditional Economy = decisions about what to produce , how and for whom are based on traditional customs and beliefs.
People hunt, fish etc as their ancestors did
Usually poor

7. 2. Command Economy = decisions about what to produces, how and for whom are decided by government
Also called controlled government
The people have nothing to say about it
Communist countries

8. 3. Market Economy= decisions are made by individuals acting in their own self interest
Capitalist system
4. Mixed Economy= combination of command and market {most countries are this type of system}

9. The U.S. Economic System The economic goals of US are….. Growth
Efficiency
Stability
Justice
Security
Charaterics
Private Property
Freedom of Choice
Free Enterprise
Limited government control

10. 5.2 Producers and Consumers
The Profit Motive= earnings after all costs of production have been paid
Factors of Production= types of resources needed to produce goods and services
Land
Labor
Capital
Entrepreneurship
Technology

11. Productivity= a measure of the efficiency with which goods and services can be produced
Can be increased through technology and specialization {focus on a certain thing}

12. Business Organizations
Sole Proprietorship= owned and controlled by 1 person
Partnership= owned by 2 or more people
Corporation= organization that is owned by people who have shares of stock known as shareholders
Discuss Pros and Cons of each

13. Prices in a Free Market
Demand= the quantity of a good or service that consumers are WILLING and ABLE to buy at a given price
Law of Demand= when price goes down, demand goes up, etc. etc.
Supply= quantity of a good or service that producers are WILLING and ABLE to sell at a certain price
Law of Supply= when price goes up, supply goes up
Interaction of demand and supply – pg

14. Production Costs
Affects price of product – read page 137
Competition = rivalry between 2 or more businesses that offer similar goods or services
Businesses want to lower prices to get business but also want to make a profit

15. Consumers in the Marketplace
Consumer sovereignty= controlling the influence of consumers
Boycott= organized refusal to purchase certain goods or services

16. 5.3 The Government’s Roles
Levels of Government
Federal, State, Local
Provide Public Goods
National defense, police, fire, education, public transportation, parks, highways

17. Redistributing income
Social Security= an insurance program that is sponsored by federal government
Paid for by tax on earners wages
Based on previous earnings
Retirement, survivor’s, disability
Unemployment Insurance

18. Public Assistance Programs (pg 142-143)
Temporary Assistance to Needy Families
( TANF)
Supplemental Security Income (SSI)
Food Stamps
WIC
Free or Reduced school lunches
Medicaid
State Children Health Insurance
Housing Programs

19. Regulating Economic Activity
Protecting the environment
Protecting Consumers
Protecting Workers
Promoting Competition
Monopoly= a single company controls the supply of goods or services
Antitrust laws= regulate unfair business practices that reduce competition

20. Ensuring Economic Stability
Fiscal policy= adjusting its policies about taxing and spending
Monetary policy= regulating interest rates and money supply

21. 5.4 Principles of Taxation
Purpose of Taxation
Tax= required payment to the government
To fund public goods and services
To influence behavior
To stabilize economy
To redistribute income

22. Taxes people pay Income tax= tax on money you earn
Social Security Tax= pay for SS program
Sales Tax= what consumers pay on good and services bought
Excise tax- on manufacture or sale of certain goods and services
Property tax- tax on the value of your property

23. Estate and Gift tax
Business or license tax
Custom duties and tariffs
See 5-16 on page 149
Read Taxes and Fairness as class on pg

24. Relationship of Taxes
Proportional Tax= same % out of everyone's income
Progressive Tax= larger % of income of high-income people than low income people
Regressive tax = takes a larger % of the income of low income people than that of high income people