The American The American Economic SystemEconomic System

GOAL 7 NOTESGOAL 7 NOTES

What is EconomicsWhat is Economics? ?

Economics is the study of how individuals Economics is the study of how individuals and countries decide how to use and countries decide how to use scarcescarce resources to produce needed goods and resources to produce needed goods and services. services.

3 Basic Economic 3 Basic Economic QuestionsQuestions

We do this by answering 3 basic We do this by answering 3 basic economic questions:economic questions:

(1) (1) whatwhat and how much should be and how much should be produced?produced?

(2) (2) HowHow should the goods and services should the goods and services be be producedproduced? ?

(3) How the goods will be (3) How the goods will be distributeddistributed??

Why Study Economics?Why Study Economics?

The main reason is The main reason is scarcityscarcity. Scarcity is, . Scarcity is, having unlimited wants but having limited having unlimited wants but having limited resources. Scarcity is the #1 economic resources. Scarcity is the #1 economic problem problem

EconomizingEconomizing

We are forced to make economic We are forced to make economic choices. This is called choices. This is called economizing,economizing, or or making the best economic decision on making the best economic decision on how to use scarce resources. By how to use scarce resources. By studying economics we can make better-studying economics we can make better-educated economic choices educated economic choices

Trade-offsTrade-offs

In making economic choices, we must In making economic choices, we must make make trade-offstrade-offs. A trade-off is . A trade-off is choosing what we want. By making a choosing what we want. By making a trade-off we must also give something trade-off we must also give something up. (Ex. Working over studying.)up. (Ex. Working over studying.)

Opportunity CostsOpportunity Costs

Opportunity CostsOpportunity Costs are what you give up are what you give up when you make an economic decision. when you make an economic decision. (Ex. failing a test.) (Ex. failing a test.)

Economics in our societyEconomics in our societyWe have a high standard of living We have a high standard of living in this country, here are some in this country, here are some reasons:reasons: ResourcesResources, we have an abundant supply and , we have an abundant supply and

variety.variety. TechnologyTechnology, advanced machines and , advanced machines and

computers.computers. Mass ProductionMass Production, producing goods in large , producing goods in large

quantities. Two techniques that were quantities. Two techniques that were developed that aided in mass production were, developed that aided in mass production were, interchangeable partsinterchangeable parts, developed by Eli , developed by Eli Whitney, and the Whitney, and the assembly lineassembly line, developed by , developed by Henry Ford.Henry Ford.

AutomationAutomation, using machines to produce , using machines to produce products.products.

Factors of ProductionFactors of Production

Factors of production are the essential Factors of production are the essential components that producers use when components that producers use when manufacturing goods in the US.manufacturing goods in the US.

There are 4 factors of production.There are 4 factors of production.

The 4 Factors Are……The 4 Factors Are……

LandLand- all of the resources and materials used - all of the resources and materials used in making a productin making a product

LaborLabor- all of the human physical activity used - all of the human physical activity used in making a productin making a product

CapitalCapital- the machines, tools, and buildings - the machines, tools, and buildings used in making a productused in making a product

EntrepreneurshipEntrepreneurship- the risk taker, ideas, - the risk taker, ideas, decision maker, and organizer of a business. decision maker, and organizer of a business. They decide how to use the Factors of They decide how to use the Factors of Production, so that they can be used Production, so that they can be used efficiently.efficiently.

Types of business Types of business organization in the United organization in the United StatesStates

Sole ProprietorshipSole Proprietorship- The largest type of business - The largest type of business organization in the US. About organization in the US. About 1919 million of these in the million of these in the US. These are businesses that are owned and US. These are businesses that are owned and operated by one person or a married couple. Sole operated by one person or a married couple. Sole Proprietorships are usually locally owned and operated.Proprietorships are usually locally owned and operated.

AdvantagesAdvantages—You are the boss, you decide what to —You are the boss, you decide what to make, you set the prices, you set the hours of make, you set the prices, you set the hours of operation, and you receive all of the profitsoperation, and you receive all of the profits

DisadvantagesDisadvantages—You assume all of the risks, you —You assume all of the risks, you invest all of the money to start the business, you pay all invest all of the money to start the business, you pay all of the bills, you must stand behind your product, and of the bills, you must stand behind your product, and you lose all of your money if the business fails.you lose all of your money if the business fails.

PartnershipPartnership- A business that 2 or more people - A business that 2 or more people own. Usually larger than a sole proprietorship, own. Usually larger than a sole proprietorship, but still pretty small. People usually start but still pretty small. People usually start partnerships to pool their money together to partnerships to pool their money together to start the business, to combine different talents, start the business, to combine different talents, and to share the workload.and to share the workload.

AdvantagesAdvantages—They share in the financial risk, —They share in the financial risk, and if the business fails both are liable.and if the business fails both are liable.

DisadvantagesDisadvantages—There could be —There could be disagreements between the partners, and if one disagreements between the partners, and if one partner dies, a new partnership must be formed partner dies, a new partnership must be formed

CorporationsCorporations- are businesses that have many - are businesses that have many owners. These are large businesses that sell owners. These are large businesses that sell stock in their corporation to raise money for stock in their corporation to raise money for investment. The investors are gambling that the investment. The investors are gambling that the corporation will turn a profit. There are two corporation will turn a profit. There are two types of stock--- types of stock--- common stockcommon stock, in which the , in which the investor receives a dividend if the company investor receives a dividend if the company makes a profit for that year, and preferred makes a profit for that year, and preferred stock, the investor receives a fixed dividend stock, the investor receives a fixed dividend each year. each year. Preferred stockholdersPreferred stockholders can vote can vote on who runs the corporation (ceo). on who runs the corporation (ceo). 90% of all 90% of all products produced in the US are produced by products produced in the US are produced by corporationscorporations..

Corporations Corporations Continued….Continued….

Advantages—There are many people who Advantages—There are many people who share the risk, stockholders have limited share the risk, stockholders have limited liability, and there is more money to invest and liability, and there is more money to invest and expand the company.expand the company.

Disadvantages—The company may become Disadvantages—The company may become too large and over expand, there are also too large and over expand, there are also power struggles and hostile takeovers that power struggles and hostile takeovers that could hurt the company.could hurt the company.

Types of economic systemsTypes of economic systems

An economic system is the way a country An economic system is the way a country tries to answer the 3 basic economic tries to answer the 3 basic economic questions.questions.

The what, the how , and the who.The what, the how , and the who. There are 4 main types of economic There are 4 main types of economic

systems in the world today.systems in the world today.

Traditional Economic SystemTraditional Economic System

This system is used by more primitive, This system is used by more primitive, less complex societies. This system uses less complex societies. This system uses customs and traditions to answer the customs and traditions to answer the basic economic questions. Some basic economic questions. Some examples are Inuits and tribal cultures. examples are Inuits and tribal cultures. These are labor intensive, and most of These are labor intensive, and most of the work is done by hand. the work is done by hand.

Command Economic SystemCommand Economic System

The government controls all economic The government controls all economic activity and answers the economic activity and answers the economic questions. Individuals have almost no questions. Individuals have almost no free will or choice in what is produced. free will or choice in what is produced. This is known as communism, and it is This is known as communism, and it is used in China, Cuba, and in North Korea used in China, Cuba, and in North Korea

Free Market Economic Free Market Economic SystemSystem

(capitalism), the consumers and (capitalism), the consumers and producers answer all of the economic producers answer all of the economic questions by interaction in a free questions by interaction in a free market; the government has a limited market; the government has a limited role, mostly in the form of consumer role, mostly in the form of consumer protection. This is also known as free protection. This is also known as free enterprise, and is used in the United enterprise, and is used in the United States.States.

Mixed Economic SystemMixed Economic System

The economic questions are answered The economic questions are answered by the government and by the people. by the government and by the people. There is some government ownership of There is some government ownership of business, this is called nationalization. business, this is called nationalization. This system is also known as socialism, This system is also known as socialism, and is currently used by France, Great and is currently used by France, Great Britain, and Canada Britain, and Canada

Examination of the factors Examination of the factors of productionof production

LandLand- Also known as natural resources - Also known as natural resources or raw materials that products are made or raw materials that products are made from. If a country is going to be from. If a country is going to be successful, they must have a high quality successful, they must have a high quality and quantity of natural resources. This is and quantity of natural resources. This is one of the primary reasons that the US one of the primary reasons that the US has a successful economy has a successful economy

ConservationConservation

is the saving and wise use of natural is the saving and wise use of natural resources. This is critical because we resources. This is critical because we have a limited supply of resources have a limited supply of resources

Renewable v. Non-Renewable v. Non-renewablerenewable

. Some resources are . Some resources are non-renewablenon-renewable; they ; they can only be used once. Some examples are can only be used once. Some examples are gas and coal which are fossil fuels. gas and coal which are fossil fuels.

Other resources are Other resources are renewablerenewable, which , which means they can be used over again, or means they can be used over again, or recycled. Some examples are paper, glass, recycled. Some examples are paper, glass, and aluminum. Recycling has become a and aluminum. Recycling has become a major element in the conservation process.major element in the conservation process.

LaborLabor

is the human physical and mental activity that is the human physical and mental activity that goes into making a product. Because of goes into making a product. Because of self-self-interestinterest, or profit, most Americans have a , or profit, most Americans have a strong incentive to work hard and improve strong incentive to work hard and improve their skills as a worker. Today’s industry their skills as a worker. Today’s industry requires more skilled workers than unskilled requires more skilled workers than unskilled ones. Education is a key, and there is an ones. Education is a key, and there is an emphasis placed on job training.emphasis placed on job training.

Four reasons why the US Four reasons why the US is so productiveis so productive

Better training and higher levels of Better training and higher levels of educationeducation

Higher wages and more job benefitsHigher wages and more job benefits Workers compensation and laws to Workers compensation and laws to

protect workersprotect workers More incentive to make money, or self More incentive to make money, or self

interest interest

Advantages of being a Advantages of being a skilled worker skilled worker

Less physical laborLess physical labor Higher payHigher pay More benefits—paid vacations, sick More benefits—paid vacations, sick

leave, and a retirement programleave, and a retirement program Prestige—more status in societyPrestige—more status in society

CapitalCapital

All of the tools, machines, and buildings All of the tools, machines, and buildings used in making a product. This factor of used in making a product. This factor of production relies on land and labor to be production relies on land and labor to be effective. Businesses always search to effective. Businesses always search to improve capital technology. Some improve capital technology. Some improvements have been, computers, improvements have been, computers, robots, and lasers robots, and lasers

EntrepreneurshipEntrepreneurship

The organizer, the person who The organizer, the person who organizes the factors of production. organizes the factors of production. They invest the money, and take the They invest the money, and take the risks in order to make a profit on their risks in order to make a profit on their investment.investment.

ProductivityProductivity

The measure of how much can be The measure of how much can be made with a set amount of resources. made with a set amount of resources. Concentrates on keeping waste to a Concentrates on keeping waste to a minimum. Relies greatly on minimum. Relies greatly on accountability.accountability.

Ways to increase Ways to increase productivityproductivity

Job training for workersJob training for workers Better organization of business. Better organization of business.

Reorganizing is also called Reorganizing is also called downsizingdownsizing..

Worker input, or ideas from workers. Worker input, or ideas from workers. This is called This is called site-basedsite-based managementmanagement..

New technologyNew technology

Factors that contribute to Factors that contribute to high productivity in the high productivity in the USUS

High quality of resourcesHigh quality of resources Lack of cultural barriersLack of cultural barriers Unified as one country, the states are Unified as one country, the states are

under one governmentunder one government Advanced infrastructure—roads, Advanced infrastructure—roads,

bridges, and transportation systemsbridges, and transportation systems An overall stable climate.An overall stable climate.

Division of laborDivision of labor

enhances productivity; this is dividing the enhances productivity; this is dividing the product making process into separate product making process into separate jobs jobs

SpecializationSpecialization

is becoming an expert in one part of the is becoming an expert in one part of the production process. This helps to utilize production process. This helps to utilize a workers talents and abilities. Being a workers talents and abilities. Being trained in only one job speeds up trained in only one job speeds up production. Examples are, doctors, production. Examples are, doctors, lawyers, and teachers.lawyers, and teachers.