1 Free Enterprise System Consumer Roles in the US & Global Economy

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Free Enterprise System

Consumer Roles in the US &

Global Economy

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Consumer Roles in Economy

Personal Economic Analysis - The study of the roles people play in an economic system.

Citizen

Worker/Employee

Consumer

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Economics TodayEconomics Today

Economics

The study of the process that involves making choices as

people try to satisfy their needs and wants

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Needs and WantsNeeds and Wants

Write down at least 10 things you would like to buy within the next month.

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Wants and needs are met by obtaining goods and services

Goods – are tangible, can be seen/touched

Services – are intangible, cannot be seen/touched

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Scarcity – the lack of something that satisfies a want or need (unlimited wants and needs in a world with limited resources)Because of scarcity we must make choices, which lead to opportunity costs

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Unintended Effects - Things don’t always go as planned

Opportunity Costs - The cost of an alternative that must be forgone in order to pursue something else Examples

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Opportunity Cost

What is given up to do something different.

Save my moneyor go on

vacation?

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Economic Growth

Personal Income

Consumer Price Index

Gross Domestic Product

Inflation

Unemployment Rate

Economic Growth is measured by:

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Gross Domestic Product

Consumer Spending + Government Spending + Business Investment

+Foreign Trade =GDP

•The total value of all final goods and services in an economy

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Inflation

Inflation - When Prices Increase

A dollar cannot buy as much as it used to

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Inflation

What can cause an increase in prices?

Change in interest ratesSurging economy

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Inflation

Who is Hurt by Inflation?

Who is Helped by Inflation?

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A retired person who lives on fixed interest

from bank certificates of deposit (CDs)

Helped or Hurt?

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A family that bought a house and has a fixed interest rate mortgage

Helped or Hurt?

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A retired teacher whose income comes from a fixed pension?

Helped or Hurt?

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A two income family. The wife is a medical

doctor and the husband is a financial analyst?

Helped or Hurt?

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Government & the Economy

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Labor Force – over 16, willing and able to work

Underemployment - Job requires less skills than you have; working part-time instead of full-time

Unemployment – over 16, not working, but actively seeking

Employment

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How well are we doing?

Unemployment

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The Business CycleThe Business Cycle Prosperity/Peak – The high point of

a business cycle Recession/Contraction – Economy

is in a period of decline Depression/Trough – The lowest

point of a business cycle Recovery/Expansion – A rise in

business activity after a recession or depression

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Our Free Enterprise SystemOur Free Enterprise System

The Business Cycle

0

5

10

15

20

25

30

35

40

45

1 2 3 4 5 6 7 8 9 10 11 12

prosperity prosperity

recession

depression

recovery

years ---->>

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prosperity

What conditions would exist in an economy if there was:

Prosperity/Peak•High employment

•High demand for goods and services

•Businesses producing as many goods and services as they can

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prosperity


Recession/Contraction•Spending falls

•Fewer goods and services demanded

•Unemployment rises

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prosperity


Depression/Trough•High unemployment

•Low productivity

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prosperity


Recovery/Expansion•Production starts to increase

•Unemployment decreases

•GDP grows

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Four Factors of Production

LANDLABORCAPITALENTREPRENEURSHIP


Land – all natural resources, minerals, and other raw materials (land, water, vegetation, animal life, atmosphere)

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Labor – the effort that a person devotes to a task for which they are paid

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CapitalPhysical capital

Human capital

Liquid capital

Four Factors of ProductionFour Factors of Production


Physical capital – human-made resources used to produce other goods and services (equipment, tools, machinery, technology, buildings, factories)

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Human capital – knowledge and skills a worker gains through education and experience (college degree, training, on-the-job experiences)

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Liquid capital – Cash or money that can be used to purchase needed factors of production

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Entrepreneurship – The people who organize land, labor, and capital to make goods and services; and assumes risk for the business

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Global Economy

Imports – goods coming in from another country

Exports – goods going out to another country

Outsourcing – building/making something overseas

Tariffs – tax on imported/exported goods

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Global Economy

Does what’s happening in the rest of world effect the US?

What if we didn’t export or import?

Why is this international trade so important?

Which countries are the most economically stable?

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Global EconomyHave computers changed the

way business is done?

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The Economic Policy of

Supply & Demand

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Quantity Supplied

Supply - The number of products a business is WILLING & ABLE to sell at a specific price

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Law of Supply

Amount businesses are willing & able to produce at all prices

As P S

As P S

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What changes Supply?# of Sellers/CompetitionPrice of Factors of ProductionPrice of Related Goods Price of SubstitutesGovernment PolicyNatural Disaster

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Quantity Demanded

Demand - The number of products a consumer is WILLING & ABLE to buy at a specific price

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Law of Demand

Amount consumers are willing & able to buy at all prices

As P D

As P D

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What changes Demand?The # of Buyers

Real Income

Price of Related Goods

Price of Substitutes

Fads & Fashion

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Price Elasticity of Demand

Measure of the change in Demand as a result in the change of prices

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Elastic vs. Inelastic

Elastic – A large change in demand when there is a change in price

•Luxuries

•Many substitutes

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Elastic vs. Inelastic

Inelastic - Little or no change in demand when there is a change in price

•Necessities•Not many substitutes

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Supply and Demand

Equilibrium--the number demanded of a product equals the number of sold of a product.

We want the perfect situation

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Equilibrium

P

Q

DS

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If there is not an equilibrium…

SurplusWhen supply exceeds demand

ShortageWhen demand exceeds supply

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Surplus

P

Q

DS

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Shortage

P

Q

DS

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Economic Systems

Traditional Economy

Command Economy

Market Economy

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Economic Systems

Traditional Economy

Closed society

Self sufficient/reliant

Creates everything for themselves

No imports/exports/trade

Not worried about advancements

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Economic Systems

Command Economy

Complete government control

Government owns all resources

Prices dictated

Jobs dictated

Manipulates supply and demand

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Economic Systems

Market Economy

Free trade

Entrepreneurship

Government provides the little control that does exist

Competition

Supply and demand dictates market

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Elements of Market Economy

Profit Motive

and

Standard of Living

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Devilonia

Freedom

Efficiency

Growth

Security

Opportunity

Stability

Equity

7 Economic Goals

Freedom

Consumers have a choice in the products and services they use.

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Efficiency

What is the best use for the available resources?

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Growth

Where do we want to be economically years from now?

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Security

Should our citizens be financially self reliant or should the government provide for them?

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Opportunity

Should our citizens make decisions based on their own experiences and they will find pleasure in?

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Stability

Is the value of our currency a concern of ours?

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Documents

1 Free Enterprise System Consumer Roles in the US & Global Economy