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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Economics TodayEconomics Today
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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Economics TodayEconomics Today
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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Economics TodayEconomics Today
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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Our Free Enterprise SystemOur Free Enterprise System
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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Our Free Enterprise SystemOur Free Enterprise System
prosperity
What conditions would exist in an economy if there was:
Recession/Contraction•Spending falls
•Fewer goods and services demanded
•Unemployment rises
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Our Free Enterprise SystemOur Free Enterprise System
prosperity
What conditions would exist in an economy if there was:
Depression/Trough•High unemployment
•Low productivity
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Our Free Enterprise SystemOur Free Enterprise System
prosperity
What conditions would exist in an economy if there was:
Recovery/Expansion•Production starts to increase
•Unemployment decreases
•GDP grows
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Four Factors of Production
LANDLABORCAPITALENTREPRENEURSHIP
Four Factors of Production
Land – all natural resources, minerals, and other raw materials (land, water, vegetation, animal life, atmosphere)
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Four Factors of Production
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
Four 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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Four Factors of Production
Human capital – knowledge and skills a worker gains through education and experience (college degree, training, on-the-job experiences)
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Four Factors of Production
Liquid capital – Cash or money that can be used to purchase needed factors of production
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Four Factors of Production
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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