CHAPTER 8 Copyright © 2006 by the McGraw-Hill Companies, Inc.

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. economics The study of economics focuses on the following: The production and distribution of goods and services and how they relate to buying, selling, and making a profit The role of government in regulating business activities How a society accumulates and distributes wealth

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. primitive economy In a primitive economy the acquisition and distribution of goods is absorbed within the traditional mode of existence. Shared materials for clothing and shelter Seasonal migration Strong communal life The San people of Africa have lived in a primitive economic society for over 20,000 years.

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Capitalism Capitalism is based on the private ownership of property and the resources of production. Wide selection of goods to purchase Regulation through competition Focus on the individual (Continued) The United States economy is based on the theory of capitalism.

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Socialism Socialism is a system in which major industries may be owned privately or publicly but are subject to governmental control. Limited choice of goods to purchase Central regulation of supply and price Focus on society’s needs as a whole In Norway, the government controls key industries, such as petroleum and oil production.

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Communism Communism is a system in which property is owned by the state and all citizens share in the common wealth according to their need. Limited choice and ability to purchase goods Regulation according to abilities and needs Focus on the group (Continued) North Korea is one of the few remaining countries that practice communism.

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. The modern economy first developed in Europe during the late Middle Ages. Political fragmentation under the feudal system created a situation that allowed for the growth of freedom and the economy. The modern economy did not emerge due to deliberate planning, but as a response to local conditions.

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Supply and demand are the basic factors that determine price. Supply:Supply: the amount of goods and services available for sale

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Supply and demand are the basic factors that determine price. Demand:Demand: the desire and ability of consumers to buy a good or service (Continued)

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Supply and demand are the basic factors that determine price. Law of Supply and Demand:Law of Supply and Demand: the market prices of goods and services are determined by the relationship of supply to demand (Continued)

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Measures of economic activity give an indication of how the economy is doing and where it might be heading. The Dow Jones Industrial Average Gross Domestic Product (GDP) Rate of inflation Unemployment rate

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. business cycle. Both GDP and GNP tend to fluctuate in a pattern called the business cycle. recession.A period of growth, or a boom, is followed by a period of slowdown called a recession. depression.A severe recession is called a depression. The last, as well as the worst, depression in American history, called the Great Depression, occurred in the 1930s.

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Government can help an economy by: Providing security Requiring dependable standards Providing trustworthy courts Enforcing laws Maintaining international agreements In 2002, the U.S. Department of Justice formed a special task force to investigate possible fraud and insider trading in the wake of Enron Corporation’s bankruptcy.

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Government can hurt an economy by: Being corrupt Conducting unfair trials Oppressing and exploiting residents Spending unwisely For nearly ten years, William Marcy “Boss” Tweed ran a corrupt political machine that profited at the taxpayers’ expense and put New York City’s economy in serious jeopardy. (Continued)

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Government can influence economic activity through its taxation policy and enforcement. (Continued) Income taxA percentage of wages, profits, and other income paid to federal, state, and local governments Social Security tax A percentage of wages paid into a public insurance fund that can be drawn on upon retirement Capital gains tax Money paid to the federal government out of profits from the sale of land, buildings, stocks, and other capital assets Property taxMoney paid (usually to a local government) by the owners of real estate Sales taxMoney paid to federal, state, or local governments on the purchase of goods or services Types of Government Taxes

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Financial institutions accept deposits, lend money, safeguard and transfer funds, guarantee creditworthiness, and exchange money. For individuals: savings banks, savings and loan associations, and credit unions For businesses: commercial banks For the government and other banks: central banks For governments and nations: international financial institutions

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. When deciding how to manage finances, a person needs to think about the following: Setting priorities Making a budget Banking and saving Investing Controlling debt Planning for retirement

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2008 by the McGraw-Hill Companies, Inc. The distribution of wealth is the way that money is divided among the people in a group, country, or the world. The disparity between the rich and the poor is growing larger. This will inevitably have a continuing impact on current events.

CHAPTER 8: Production, Distribution, and Consumption Copyright © 2006 by the McGraw-Hill Companies, Inc. Economic development is encouraged by the following practices: Inventiveness and ingenuity Organization and efficiency Utilization of natural and human resources The invention of the Internet is a major force behind the developing global economy.

Copyright © 2006 by the McGraw-Hill Companies, Inc. THE END Chapter Review QuizGED Practice Quiz Practice the skills you learned in this chapter by taking the Chapter Review Quiz or the GED Practice Quiz. CHAPTER 8: Production, Distribution, and Consumption