Civics Core 100, Goal 8 Goal 8: The learner will analyze features of the economic system of the United States.

Economic Systems

Free Market Decisions are made in free markets based on the interaction of supply and demand AKA : capitalism, free enterprise Private citizens own the factors of production

Mixed Economy Individuals carry on their economic affairs freely, but are subject to some government REGULATION.

Communism (Command) Opposite of Market Economy The individual has little, if any influence over how the basic economy functions The government tells produces what to do

Socialism Belief that the means of production should be owned and controlled by society Government owns the major factors of production but PRIVATE ownership of small businesses

Traditional Economies based on custom or habit Traditional methods and materials are used to make items in this economy

Characteristics of Market Economy

Profit The money a business receives for its products or services above its costs Primary purpose of business

Competition The struggle that goes on between buyers and sellers to get the best products at the lowest prices

Basic Economic Questions

Basic Economic Questions WHAT to produce? HOW to produce? FOR WHOM to produce?

Currency

Currency Coins and paper money Money doesn’t have value by itself The have value only because we accept that they have value; before currency people bartered

Supply / Demand

Supply Various quantities of a good or service that producers are willing to sell at all possible market prices Opposite of demand The higher the price, the more producers will be willing to make. The lower the price, the fewer items they want to make

Demand Desire, willingness, and ability to buy a good or service The higher the price the fewer consumers will purchase. The lower the price, the more consumers will buy.

Substitute and Complementary Goods

Substitute and Complementary Goods Substitutes: Competing products because consumers can choose one over the other Change in price in one good, causes the demand of other to change in same direction Price in good A goes up, the demand for good B goes up Price in good A goes down, demand for B goes down. VS

Substitute and Complementary Goods Complements: products that are used together Demand for one good moves in the opposite direction as the price for the other Price of Good A goes up, Demand for Good B goes down

Price Change

Surplus Amount by which the quantity supplied is higher than the quantity demanded Price is too high Consumers are unwilling to pay the price Will lead to needing to lower prices (sales)

Shortage Amount by which quantity demanded is higher than quantity supplied Price is too low Suppliers are unwilling to sell their goods or services in large enough numbers to meet demand

Equilibrium Price Supply and demand are balanced at this point There is neither surplus nor a shortage

Money and Banking System

Money and Banking System $ serves as a medium of exchange and a standard of value Commercial banks provide services such as checking and savings accounts, debit cards, loans, credit cards and certificates of deposit. Credit Unions perform the same services on a non-profit basis Bank deposits are insured by the FDIC

Types of Businesses

Types of Businesses Sole Proprietorships: most common type; business owned and operated by a single person Partnerships: business that 2 or more people own and operate Corporation: organized business recognized under law that has many of the rights and responsibilities as citizens own property, pay taxes, sue or be sued

Liability

Limited Liability When one purchases stock in a company, that is all they can lose if the company goes out of business. An advantage for corporations in gaining investments from individuals. Less risk for investors than owning own business

Unlimited Liability Owner is responsible for all debts of the business Sole Proprietorships and Partnerships Risky to own a business

Circular Flow Diagram of Economic Activity