1. Economics Chapter 17

2. Decisions, decisions,… Needs vs. Wants –Where does car fall? Needs: basics of life Food & water Shelter clothing Wants: things to make life more comfortable Cell phone TV & video games

3. Types of Economic Systems - 1 Traditional –Decisions about $$$ based on previous choices –Self-reliant (produce own food-make clothing) –Bartering Trade value instead of $$

4. Types - 2 Command Economy North Korea, Cuba –All economic decisions made by the government –Gov’t owns all businesses Owns all tools and equipment –Gov’t tell workers where they will work –Gov’t sets prices for all goods made

5. Types - 3 Market Economy United States uses this style, but US is not completely market economy… –Allows for individuals to make decisions about spending $$$ –Individuals decide what they will make, where they will work –People have freedom to start business People get to set prices for their goods Competition is encouraged

6. Types - 4 Mixed Economy –United States also uses this type… Most American businesses are free to do as they please…but: –US government regulates some of their actions & practices. »Businesses have to pay federal minimum wage. –Most government regulations deal with protection of people and the environment. »“Logging” companies have to abide by Environmental Protection Laws. (endangered species)

7. Capitalism “American” form of market economy –All productive resources are owned by people –Farms, factories, machinery –Closely linked to market economy –People are free to buy and sell –Make as much $$ as you can by working harder

8. Capitalism, pt. 2 Encourages people to invest in business Top 2 Companies to invest in 2014: Gold World Resources (GCW.V) Challenger Financial Services (CGF.AX) Anyone who wants to can invest in any business they choose… –Stock Market Buy shares low Sell shares high –= profit

9. Free Market The right to buy and sell goods as you choose…prices are set by competition. Undercutting happens when producers sell stuff under cost to beat competitors…creates a loss in profit. –Free Enterprise: Americans can open their own business if they have capital ($$$), time and the want to.

10. Profit vs. Loss Profit is the amount of $$ left over after expenses are paid. All under law of “Supply and Demand” Profit motive: desire to make $$$ –You must make stuff people want to buy –You run risk of losing $$$ –Search for “acceptable” price »People will pay.

11. Law of Supply Buyers want more of something when price is low… When price rises, demand falls –Gasoline: people buy more price lower Businesses are more willing to produce items that sell higher.. –People are more willing to buy stuff that is cheaper.

12. Law of Demand Says buyers will want more of something when $$ is low… To open a business, consider: –Cost of: Materials Labor Overhead –Bills, bills, bills

13. Open a Business??? Entrepreneur: person who organizes, manages, and takes on all risks of owning a business. –Bill Gates (Microsoft) –Donald Trump (Trump Industries) Be willing to learn from others… Listen to people who “been there, done that”. Be innovative… Look at alternative methods Investigate new technologies –If you create something, apply for PATENT. »Protects your interest in the item for up to 17 years. Study new advances –If you create music or stories, you can apply for COPYRIGHT protection for those original works.

14. Factors to start Business 1. what natural resources needed? Found in Earth or atmosphere Oceans, rivers, mines, forests and fields Most are limited-all but 1 must be paid for –Air 2. what are transportation costs? Location of business will decide Crowded areas often more expensive 3. build facility or rent? Cost lower to build or rent and have nothing to show at end

15. Factors, pt. 2 4. what capital do I have? –$$$ ?? Called the “start up” fund Financial capital Can borrow from Small Business Administration –(federal agency created to help small business owners) –Cost of tools, equipment, machinery & office needs Capital goods

16. Factors, pt. 3 5. what are my labor costs? –How much will workers cost me? –All human effort, skills, time and abilities are called labor. –Government tells us to pay “minimum wage” per hour; if not salaried worker. (Person paid by month)

17. Types of Business Small business –Historical type; before 1800’s –Mostly owned by 1 family Non-Profits –Do not operate to make $$ –Exempt from taxes American Red Cross Goodwill

18. Types, pt. 2 Conglomerates –Large companies Could by combined into other companies –Run by corporate Board of Directors –They have lots $$$, time and people to produce items cheaply. Wal-Mart

19. Ways to Organize Business 1. sole proprietorship (single family small business) –+18 million businesses operated this way –Advantages: They are their own boss They decide what to produce They decide when they will work They take all profit

20. Ways, pt 2 Disadvantages of small business: –They must buy building or rent facility –They must hire and pay workers –They are personally liable for business taxes –They must pay for equipment –If the business fails, they take the loss of $$$.

21. Ways, pt. 3 2. Partnership –Owned by 2 or more people –They share business rights/responsibilities –They share production costs & profit –They also can lose personal wealth if business fails –They have to agree on all issues related to business…if not, they might fail.

22. Ways, pt. 4 3. corporations –Recognized as a separate legal entity –Owners request special title from IRS –If granted, the company is owned by it’s stockholders (people who buy shares of company stock)

23. Ways, pt. 5 Corporations raise $$ by selling stock shares. Profits are split among shareholders. Corporations can also sell bonds (loans made to company with promise of later payment) Corporations are run by Board of Directors –Board usually elected by shareholders –Each board required to have yearly meeting of all stockholders. –No one is personally liable if the company goes broke. It is broken up and sold off to pay debts.