1. The Economy & politics
Chapter 13

2. The Economic institution
Every society has certain wants and needs that must be met if their happiness and well being are to be assured
NEEDS: food, clothing, housing, safe environment are basic to survival
WANTS: new car, cell phones, fashion are not necessary for survival but add to the quality of life
All societies develop a system of roles and norms that govern the production, distribution, and consumption of goods and services…this system is called THE ECONOMIC INSTITUTION

3. FACTORS OF PRODUCTION Resources needed to produce goods and services
Land-soil, water, plants, sunlight
Labor- human resources
Capital- all the manufactured goods used in the production process
Entrepreneurship- organizational skills and risk taking attitude
Technology is the use of science to produce new products or make process more efficient, a society’s ability to exploit the factors of production shapes their economic system

4. Economic systems All systems have 3 basic sectors
Primary sector- extraction of raw materials from the environment, fishing, hunting, mining, farming
Secondary sector-use of raw materials to manufacture goods
Tertiary sector- the provision of services

5. Preindustrial economic systems
Little technological development
All economic activity is carried out using human labor and animal power
Labor concentrated in the primary sector
Emphasis on providing food

6. Industrial economic systems
Emphasis shifts to the secondary sector, made possible by advances in technology-machines and new sources of energy.
Agricultural production rises, allows for greater population who shift to urban living and manufacturing
Change nature of work, workers become specialized

7. Economic models
Who owns the factors of production and how is economic activity regulated?
Most economies as mixed, no society is pure
France, Sweden, Great Britain middle of spectrum with government controlling certain essential services and industries such as health care, energy production, or production of certain goods
United States capitalist, but…
China socialist, but…

8. capitalism
Factors of production are owned by individuals rather than the government
Profit and competition regulate economic activity
Consumer purchases determine supply and demand
Adam Smith, “invisible hand”, the forces that determine economic choices
Law of Supply: producers will supply more products when they can charge higher prices and fewer at lower prices
Law of Demand: consumers will demand more of a product as the price of the product decreases
Laissez-faire – let the people do as they choose, free-enterprise system

9. socialism Factors of production are owned by government
Government regulates economic activity
What to produce is determined by social need, not by consumer demand, regardless if it can be produced profitably
Central planners determine how to produce goods, what goods in what quantities
For whom to produce is determined by need rather than the ability to pay
Ultimate form communism a social political system in which all property is communally owned, Karl Marx, ideal never achieved in practice, instead totalitarian governments have imposed

10. American economy Rise of corporate capitalism
Corporation- a business organization that is owned by stockholders and is treated by the law as if it were an individual person, can enter into contracts, issue stocks, and buy and sell goods
Only 20% of businesses, but 88% of business sales
Oligopoly-a few large companies control an industry- US oil, auto, breakfast cereals, control prices, stop new entrants into a market, exert pressure in the political arena
Protectionism- use of trade barriers to protect domestic manufacturers from foreign competition, quotas, surcharges, taxes

11. Globalization
Larger corporations located in several nations, multinational corporation
Office in one nation, subsidiaries in others
Can manufacture in one nation (factories in Mexico) from materials from several others, finished product sold in countries worldwide
Walmart bigger economy than 160 countries
Affect international affairs

12. Changing nature of work
Shift from an industrial base to a service base
Automation and efficiency have reduced the number of workers needed for manufacturing
Competition from newly industrialized countries, out-sourcing
Downsizing-cutting costs by reducing size of workforce
Technological requirements not being met by educational system

13. E-commerce
Business conducted over the internet
Not based on traditional factors of production but instead based on information
New way of doing business, resupplying and billing automatically linked, package goods and services to meet individual requirements
Fears of loss of privacy
Cyber Monday