CHAPTER 17 SEC. 1

LEARNING TARGET #1

I can describe the different types of economic systems used around the

world

ECONOMIC SYSTEMS

3 basic economic systems

Traditional

Command

Market

Most countries use a mix of these 3 to meet their citizens demands

TRADITIONAL ECONOMY

Economic decisions are based on how the activity was done in the past (traditionally)

People make everything that they need

Ex. People grow their own food, make their own goods or use a barter system to trade

COMMAND ECONOMY

Government makes all economic decisions, owns/controls all capital, tools, & production equip.

Tells workers what they can produce, how much they can produce, and how much they can charge for it

Ex. North Korea, Cuba

(FREE) MARKET ECONOMY

Economic decisions are made by individuals looking out for their own best interest

People can start their own business to make/sell any legal product that they choose and set their own price

Companies are free to compete with one another

LIFE IN A MARKET ECONOMY

People have the ability to pursue a profit.

(def.) – the money a business has left after it has paid its expenses

In order to provide a good/service & make a profit you must have resources

Scarcity – the lack of a particular resource

Lack of a specific resource tends to make the price rise.

http://video.cnbc.com/gallery/?video=1118024123

Http://www.youtube.com/watch?v=LHT23An4Tno

SUPPLY & DEMAND

Law of supply – business will produce more products when they can sell them at higher prices.

Ex. Nintendo manufactures more wii’s after Christmas sales go through the roof.

Law of demand – buyers will demand a greater quantity (more) of a good when its price is low. As the price falls, demand rises.

Ex. You stock up on paper/pencils at the beginning of the school year when they are cheapest.

Free-enterprise – business operate with little interference from the government.

Competition between business is important!

Leads to… Improved products

New innovations

Cheaper products

Our government protects our ideas so no one else can take credit for them

Keeps people inventing, creating, improving, etc.

Patent – exclusive rights of an individual to make/sell a product for a certain number of years

Copyright – exclusive right to publish/sell a piece of writing, music, or art

Capitalism (def) - economics system where the productive resources are privately owned

Monopoly (def) – only one company is selling a product or providing a service

Highly discouraged in the U.S.

CHAPTER 17 SEC. 2

BUSINESS ORGANIZATIONS

Advantages:

You are your own boss

Decide hours

Determine business operation

Take all the profits

Disadvantages:

Owner pays ALL start-up costs

Must be able to pay employees

Responsible for all debts

Sole Proprietorship A small business owned by one person

18 million in the U.S.

BUSINESS ORGANIZATIONS

Advantages:

More money to invest in business

Decide hours

Determine business operation

Risk is shared

Disadvantages:

Owners pays ALL start-up costs

Disputes can lead to business problems

Responsible for all debts

Partnership

Where two or more people share the costs, responsibilities, etc. of ownership

BUSINESS ORGANIZATIONS

Corporation

Most of the countries large business that is a permanent organization

Raise money by selling stocks

Shareholders receive a portion of the profits in relation to their holdings.

States issue charters of incorporation, and corporation obeys regulations.

Stockholders elect directors and vote on changes.

Board of directors selects corporate officers.

No one is responsible for a corporation’s debt if it fails.

NON-PROFIT ORGANIZATIONS

Provide goods and services without seeking a profit

Charities, scientific research associations, organizations dedicated to cultural and educational programs

Rely on donations from individuals to operate

Are not taxed by the government

CHAPTER 17 SEC. 3

THE FOUR FACTORS OF PRODUCTION

Natural resources

Capital

Labor

Entrepreneurship

Natural resources—provide physical space and raw materials for business

Capital—the money needed to start a business

Labor—the human effort required for the business

Entrepreneurship—initiative, decisions, risks, and management involved in a business

HOW GOVERNMENT REGULATES BUSINESS:

Protects small businesses from big corporations (monopolies)

Protects workers’ health and safety

Prevents pollution

Protects consumers from harmful products and practices

Ensures equal opportunity employment

ECONOMIC FREEDOMS IN THE U.S. MARKET

ECONOMY Freedom to buy and sell—government role is limited

Freedom to compete—producers make what they think the consumer will buy

Freedom to earn a living—citizens free to seek the best jobs they can get

Freedom to earn a profit—the profit motive is essential to the system

Freedom to own property—private ownership makes the free market possible