Transcript The Economic System

The
Economic System
Chapter 17
The Economic System at Work p 447-460
Business Organization p 460-465
Making Business Decisions p 466-469
P 450-452
Economic Systems
PART 1:
THE ECONOMIC SYSTEM AT WORK
Economic Systems
• How people get the things they want is determined by a
country’s economic system
• The nature of economic systems varies widely from place to
place
• Economic systems help people create and obtain the goods
and services they need
Needs vs. Wants
NEEDS
WANTS
• Requirements to survive
• All people have same
needs:
• Things to make life easier
& more enjoyable
• Cars, computer, cell phone
• Food and water
• Shelter
• Clothing
• Different people have
different wants
• They never change
• May change over time
• They are subjective
• They are objective
People satisfy their WANTS by obtaining goods and services
How people obtain goods and services is determined by their
economic system
Free Market
• People are free to own property, to create companies and to
buy products as they choose
• Free Market is the right to buy & sell goods as you want
• Companies must be free to compete with each other
• Competition among sellers is the main factor in setting prices
• Sellers try to set their prices lower than their competitors so
people will buy them
• But can’t set prices so low that they don’t make a profit
Wants
satisfaction
chain
the process of
obtaining goods
and services to
satisfy your
wants
Human wants
Want
satisfaction
achieved
Makes goods
available for
consumption
Use resources
to produce
Results in
goods and
services
3 Types of Economic Systems
Traditional
• Economic decisions
based on past activity
• Subsistent -Grow own
food and make own
goods
• Barter for needed
goods
• May or may not use
money for trade
Command
Market
• Government makes all
economic decisions
• Government controls
all capital, tools and
production equipment
• Complete Government
control of production
• What can produce
• How much to
produce
• How much to charge
for it
• Communist countries
used command system
• N. Korea & Cuba
• Economic decisions
made by Individuals in
personal and family
best interest
• Anyone can start a
business as long as
product is legal
• Set prices based on
what market will bear
• Opposite of a
command economy
• Based on Freedom of
choice
• United States and most
other countries use
Review
• Need vs. Want
• Want-Satisfaction chain
•
•
•
•
•
Want established
Find resources to create product
Results in a product
Product available to consume
product purchased and want satisfied
• 3 basic Economic Systems
• Traditional
• Command
• Market
• Free Market
P 453-458
Life in a Market Community
The US Economic System
PART 2:
THE ECONOMIC SYSTEM AT WORK
Competition for resources
• Profit is the money that
a business has left after
it has paid its expenses
• Profit motive – desire to
make a profit
• In order to make profit
have to provide goods or
services
• Need resources to make
a product
Profit
Provide goods
or services
Limited
Resources
• Resources are limited
• Must compete for
resources
• Competition eventually
affects price of goods
Compete for
resources
price of
goods
•
•
•
•
Scarcity- the lack of a particular resource
When a resource is scarce, it is harder for producers get
Products made with that resource are also harder to get
The result, prices for these products rise
Law of Supply & Demand
Law of Supply
Law of Demand
• BUSINESSES will
produce more products
when they can sell them
at higher prices
• BUISNESSES will produce
fewer products when
prices are low
• Businesses are more
eager to provide a
product for a high price
than a low price
• Ex: Mowing lawns
• BUYERS will demand a
greater quantity of
goods when its price is
low
• As price rises BUYERS
will buy less of the
product and demand
will fall
• Buyers are more eager to
buy a product for a low
price than a high price
• Ex: Buying CD’s
Goal is for Supply of a product & Demand for a product to balance each other
Balancing Supply
& Demand
• You are selling lemonade
• It costs $1 to make a glass of lemonade
• If you sell a glass for $10
• you will make lots of profit
• not many people will want to buy it – low demand
• You will have lots of lemonade left over – high supply
• If you sell a glass for 5 cents
• You will lose money
• Lots of people will want to buy it – high demand
• You won’t have any lemonade – low supply supply
• If you sell a glass for $2
• you will make profit
• Average amount of people will buy it - balanced demand
• You will have enough supply – balanced supply
Free Enterprise
• Free Enterprise – businesses may operate however they see fit,
with little direction or influence by government
• Offers the opportunity to make HUGE profits
• Bill Gates – Microsoft
• Steve Jobs – Apple
• Possibility of huge profits also mean possibility of huge losses
• Main Risk that business men face in Free Enterprise System is
that their business might fail
• Competition is vital to free enterprise
• Competition is main factor in setting prices
• Competition drives companies to improve products
Innovation & Free Enterprise
• Innovation is important to Free Enterprise
• Improve old products
• create new products
Protecting Innovations
• Patent – exclusive
right to sell your
invention for a
certain # of years
• Copyright – exclusive
right to publish or
sell a piece of
writing, music or art
Capitalism
• Capitalism is an economic system in which productive resources are
owned by private citizens
• Capitalism is closely linked to market economy
• People are free to buy and sell as they please
• Capitalism encourages people to invest their money in companies
• If company is successful can make huge profits and those profits are
passed on to the investors
What Consumers want Businesses produce
Monopolies
• Competition is good for economy, lack of competition
weakens economy
• Monopoly - where only 1 company is selling a product or
providing a service
• A company with a monopoly can set any price it wants
• Monopolies are illegal in the US
• The US government watches businesses to see that no new
monopolies are formed
Mixed Economy
Government regulations are meant to protect people, they protect workers, the
natural environment and control some prices through subsidies
American Business
• Today most companies in America are huge
• McDonalds
• Apple
• Nike
•
•
•
•
In the early days of America most businesses were small
In the late 1800’s large business began to develop in the US
Today Big Business is essential to the US economy
Conglomerates –a merger of businesses that produce, supply
or sell a number of unrelated goods
• GE General Electric
• Dow Chemical
• Time Warner
• Today there is a mix of large and small companies
Review
• Profit –
• is the money a business has left after it has paid its expenses
• Scarcity• is the lack of a particular resource
• Law of Supply –
• businesses will produce more products when they can sell them at a
higher rate
• Law of Demand –
• buyer will demand a greater quantity of a good when the price is low
• Free Enterprise –
• business owners will operate however they see fit
• Capitalism –
• encourages people to invest their money
• Monopoly –
• a company that so dominates the market that it is effectively the a
product or service
• Government regulation is used
• to protect citizens and the natural environment
American businesses may be
organized as sole proprietorships,
partnerships, corporations, or
nonprofit organizations
P 460-465
Economic Systems
PART 2:
BUSINESS ORGANIZATIONS
Types of business Organization
• How your business is organized depends on its size and
complexity
• American businesses may be organized as
•
•
•
•
Sole proprietorships
Partnerships
Corporations
Nonprofit organizations
Sole Proprietorship
• A small businesses
owned by one person
• Owners keep all profits
• Owner supply capital,
hire help, and pay taxes;
• Owner solely responsible
for losses
• Not permanent,
Proprietorship ends at
death of owner
• Most US businesses are
sole proprietorships
Partnership
• Two or more people share
responsibilities, costs,
profits, and losses
• Partnerships have same
responsibilities and risks as
Sole proprietorship
• Often more successful than
sole proprietorships
• Problems arise if partners
don’t agree on running of
business
• Not permanent,
partnership ends at death
of a partner
Corporation
• Permanent organizations, most common form for large
companies
• Raise money by selling stocks
• Shareholders receive a portion of the profits in relation
to their holdings. - dividends
• States issue charters of incorporation, and corporation
obeys regulations.
• Stockholders elect directors and vote on changes.
• Board of directors selects corporate officers to oversee
daily operations.
• No one is responsible for a corporation’s debt if it fails
Basic organizational structure
of a Corporation
The 5 Most Important Features of a
Corporation
raising
money
meeting debt
responsibilities
securing the rights to
operate
electing directors
choosing
executives
Preferred Stock
• Less risky
• Dividends guaranteed if
company is profitable
• Stockholders do not
usually vote in
company’s affairs
Common Stock
• more risky
• Dividends only when
company is very profitable
• Benefits include
• possibility of higher dividends
• increased stock value
• voting on company’s affairs
Non-Profit Organization
• Businesses that provide good and services without seeking a profit
• Do not make a profit so are not taxed by government
• Most use donations from individuals to operate
Non- Profit Organizations
Business owners must make
decisions about their use of natural
resources, capital, labor, and
entrepreneurship. Business
owners are free to make these
decisions with little interference
from the government
P 466-469
Economic Systems
PART 2:
MAKING BUSINESS DECISIONS
Natural
Resources
Entrepreneurship
4 factors of
production
Labor
Capital
Natural Resources
• Are the raw materials needed for business
and the physical space the business occupies
• Natural resources are limited
• Only a factor when it affects the cost of the good produced
The physical location of a business is a key to it’s success
Capital
• Capital—is the resources you need to start a business
Capital Goods
Financial Capital
physical stuff you
need to create a
product
Money used to buy
capital goods
Labor
The workers required to produce the good or service
of the business
Workers can be paid hourly wages or salaried earnings
Productivity - the amount of work produced by a worker per hour
decisions, risks, and
Entrepreneurship initiative,
management involved in a business
Entrepreneurs put up own capital and take all the risk of failure
Great Risk = Great Profit or Great Failure
Protects
against
monopolies
Protects a
person’s right
to own
property
discrimination
Government
influences
businesses
through
REGULATION
Minimum
wage
Protects
worker’s
health and
safety
Buy and sell
goods and
services
Taxes
businesses
Small Business
Administration
MAJOR
DEBATE OVER
HOW MUCH
FEDERAL
REGULATION
OF BUSINESS
THERE
SHOULD BE.
EXTRA SLIDES
A Mixed Economy
• There is some government regulation of the economy
• Government regulations are meant to protect people
• Regulations to protect workers
• Minimum wage
• Worker safety
• discrimination
• Regulations to protect natural environment
• Limits on chemicals released into air & water
• Regulations to control prices
• Government subsidies - $ paid to farmers to limit or increase
production of a crop