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The Fundamentals of Capitalism

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1 The Fundamentals of Capitalism
Business Management Mrs. Demers

2 Bell Work Review – Monday, 11/1
All resources are _____________________. Utility is ____________________________. The five economic utilities are ___________________________________. The four factors of production are ___________________________________. The three major types of economic systems are ________________________________. The three economic-political systems are ___________________________________.

3 Standards: BMS3.11 Explore economic principles related to business environment. BMS Explain three economic systems: customer, directed, free enterprise. BMS3.24 Discuss the application of economic principles to business operations. BMS Explain basic economic concepts and terminology. BMS Describe the characteristics of a free enterprise system.

4 Learning Target Students will be able to:
Describe why private property is important to capitalism. Describe how prices are set in a capitalistic system.

5 Key Terms: Private property Profit Demand Supply Competition

6 Enduring Understanding
One of the basic features of capitalism is the right to private property, a right reserved by the constitution and protected by the government. Other key features include the right of each business to make a profit, set its own prices, to compete, and to determine the wages paid to workers.

7 Pillars of Capitalism Private property rights Profit incentive
Market price system Competition Labor & income distribution system

8 Private Property Rights
The principle of private property is essential to capitalism. Private property consists of items of value that individuals have the right to: Own Use Rent Sell

9 Profit Motive In capitalism, profit is the incentive and reward for producing goods and services. Calculating Profit: Total Sales – Total Costs = Profit or Loss The average profit earned by businesses is approximately 5% of sales receipts.

10 Market Price System Demand Supply Market Clearing Price Supply MCP

11 Market Price System Demand
Demand for a product is the number of products that will be bought at a given time and a given price. Demand only includes individuals willing and able to buy. An increase in demanders can drive prices up. Negative relationship between price and quantity demanded. Demand is less at higher prices.

12 Market Price System Supply
The number of units of a product that will be offered for sale at a given point in time and a given price. A shortage in supply can drive prices up. There is a positive relationship between supply and price. The quantity supplied is higher at higher prices.

13 Bell Work – Tuesday 11/2 List 5 pillars/characteristics of capitalism.
P _ _ _ _ _ _ P _ _ _ _ _ _ _ R _ _ _ _ _ P _ _ _ _ _ I _ _ _ _ _ _ _ _ M _ _ _ _ _ P _ _ _ _ S _ _ _ _ _ C _ _ _ _ _ _ _ _ _ _ L _ _ _ _ & I _ _ _ _ _ D _ _ _ _ _ _ _ _ _ _ _ System

14 Market Price System Market Clearing Price (MCP)
MCP is the price at which a producer can meet costs and make a reasonable profit. MCP is the price at which consumers will buy enough of the product for the producer to make a profit. MCP is the price at which supply equals demand. MCP is the BEST price for a product at the given time.

15 Competition Sellers try to make a profit.
Buyers try to buy quality goods at the lowest possible prices. Competition is the rivalry between sellers for consumers’ dollars. Benefits of competition: Improved quality New product development Efficient business operations Lower prices Efficient use of scarce resources

16 Types of Competition Price Competition: Non-Price Competition:
Trying to compete by charging the lowest price. Non-Price Competition: Trying to compete by offering better quality, services, and product features.

17 No/Limited Competition
Monopoly: The opposite of competition in which only one firm is producing the product. Leads to high prices and no consumer choice. Oligopoly: Very few competitors control an industry Can lead to collusion for high prices, limited consumer choice, and strong barrier for new businesses to enter the market.

18 Income Distribution People in the US receive income – wages and salaries- by contributing their labor to the production of goods and services and by earning interest on money they lend to others, as rent, and as business profit. The laws of supply and demand also influence the amount individuals receive for wages and salaries.

19 Review Questions Is the profit earned by businesses usually over or under estimated? What feature of capitalism helps to keep prices fair and reasonable? How might a business attract customers from a competitor? List three examples of non-price competition. Is the demand high or low for unskilled workers? Is the supply of unskilled workers low or high?

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