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Chapter 3.  Producers AND consumers want to benefit from the system  Consumers want the best price for the greatest quality  Producers can only charge.

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Presentation on theme: "Chapter 3.  Producers AND consumers want to benefit from the system  Consumers want the best price for the greatest quality  Producers can only charge."— Presentation transcript:

1 Chapter 3

2  Producers AND consumers want to benefit from the system  Consumers want the best price for the greatest quality  Producers can only charge what consumers are willing to pay  Producers want to lower costs to make a greater profit Increase productivity and efficiency Specialization Division of Labor

3 Edward Hopper 1942

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6  U.S. Constitution grants certain rights that allow people to engage in business activities.  Recognition of property rights 5 th amendment & 14 th amendments prevent government from taking away personal property away from an individual except when there is a public reason.

7  5 th --nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.  14 th -- All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

8  Taxation – Constitution sets up clear guidelines on how businesses must be taxed.  Binding contracts – people and businesses have rights to make and enter contracts. They may not use political processes to be excused from contracts. Laws cannot be passed to change a business agreement.  16 th Amendment allows for a personal income tax

9  Profit Motive – force that encourages people and organizations to improve their material well-being rewards innovation and efficiency.  Open Opportunity – everyone can compete in the marketplace, enabling economic mobility.  Economic rights

10 Legal equality – all the same legal rights Private property rights – ability to control and own possessions Free contract – decide upon agreements Voluntary exchange – choosing what to buy or sell when and at what prices Competition – rivalry among sellers Drives down prices, drives up quality http://www.youtube.com/watch?v=jnjPFZV8Wqo&feature=relmfu

11  The rate at which a company creates goods and services for sale is called that company’s productivity  Inputs are resources used to make things  Output is the amount of goods/services created  Seek to maximize profit Cut costs, raise prices while delivering quality

12  Besides lowering costs, producers can become more efficient One of the easiest ways to be more efficient is to specialize  Specialization is similar to the division of labor  It allows producers to do what they do most efficiently and trade their income for everything else

13  Freedom to make economic choices  Make desires known through choices (purchases)  Producers will respond  Join an interest group– a private organization that lobbies the government in their interest

14  Gross Domestic Product – (GDP) measure of the country’s economic well-being  Total value of all FINAL goods and services produced in an economy  GDP helps to predict business cycles based on increases or decreases over time

15 Business cycle  Believed natural cycles of economic growth and decline Expansion -> Contraction Not day to day or weekly activities Cycles may last a 6 months, a year or longer

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17  High Employment  Stable Prices  Steady Growth

18  Provide jobs for everyone able and willing to work.  Good unemployment rate: 4%-6%  What is the current rate?

19  Each generation seeks to obtain a higher standard of living than the previous one.  Economy must grow to provide more goods and services.  Gross Domestic Product (GDP) measures this growth.

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21  Stability gives confidence to consumers, producers and investors.  Price levels help indicate stability.  Dramatic price increases hurt consumers while dramatic price decreases hurt producers.

22  Investment is using resources that could bring immediate benefits for the purpose of gaining greater benefits at a later time  Capital Investment buys new or upgrades machinery, retrains or educates workers making both more productive The more training and education a worker has the more likely their standard of living will rise.

23  Achieving productivity and a higher standard of living: Work ethic – commitment to hard work Specialization – efficient division of labor Technology –makes us more efficient lowers costs Education –leads to more innovation and better decision-making

24  Protect private property  Enforce contracts and rule of law  Protect consumers from dangerous products and fraud  Public disclosure laws – require companies to provide info about their products  Resolve market failures and improve outcomes http://www.pbs.org/wgbh/pages/frontline/sh ows/meat/

25  Incentives for innovation: Patents, copyrights  Regulation: intervening in a market for a purpose Deregulation: removing market controls  Providing public goods  Redistribution of income : taxation -> social security, welfare

26  Public good  Public good – shared good or service for which it would be inefficient or impractical for consumers to buy individually.  Total benefits to society are greater than the total cost. › Public goods – financed by the public sector (govt) › Private good – provided by private sector (individuals/businesses)

27  Someone who would not choose to pay for a good or service but benefits anyway. “piggybacking”  Market failure – the market does not distribute resources equally. Using someone else’s wifi Listening to public radio without paying for it

28  Externalities exist as a gap between the private cost incurred and the social cost that isn’t  If the gap between the two is large individuals have an incentive to do things that make them better off at the expense of others  What are the different costs associated with picking up after your dog in a public park? http://www.youtube.com/watch?v=zcPRmh5AIrI&list=PLD78A4CA3338CFA7E&index=9&feature=plcp

29  When externalities aren’t dealt with we say that markets actually are unable within themselves to produce efficient allocations Or others are forced to incur costs which they did not benefit from or create  Governments can resolve these failures through regulation, taxation or property rights

30  Do people always take care of the public goods or resources they share?  Economists use the phrase Tragedy of the Commons to illustrate how individuals seeking personal gain will deplete or destroy common resources.  So what is the solution? http://www.youtube.com/watch?v=MLirNeu-A8I&feature=relmfu

31  In a free market economy wealth is spread unevenly throughout society. Poverty is the result  Poverty threshold – income level below which is needed to support families or households. Determined by Federal govt. Welfare – government aid for the poor Reformed during the Clinton era

32  Cash transfers – payments redistributing income to the those who lack it TANF – Temporary Assistance for Needy Families Social Security – to elderly and disabled Unemployment – to those who have lost jobs, must show efforts to find work Worker’s compensation – to injured workers

33  In kind benefits – provided for free or at great reduced prices  health insurance: medicare – for those over 65 medicaid – for low income  Education – grants, funding from pre-K to college  Faith Based Initiatives – allowed to compete for federal funds to help the poor and needy


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