1. THE ECONOMIC INSTITUTION

2. FACTORS OF PRODUCTION The Economic Institution of a country is its roles and norms that govern the production, distribution, and consumption of goods and services Peoples unlimited needs/wants vs. limited resources (scarcity) Creates three key questions: 1.What goods and services should be produced? 2.How should these goods and services be produced? 3.For whom should these goods and services be produced? Depends on the available Factors of Production Land – natural resources (soil, water) Labor – those who work to produce goods and services Capital – manufactured goods used in production (tools, machinery) Entrepreneurship – skills and risk to start a new business

3. ECONOMIC SYSTEMS Three Sectors of the Economic System 1.Primary Sector The extraction of raw materials from the environment Fishing, hunting, mining, and farming 2.Secondary Sector The use of raw materials to manufactured goods Turning wood into a canoe 3.Tertiary Sector Providing of services Selling the canoe

4. ECONOMIC MODELS Sociologist recognize two basic economic models: Capitalism and Socialism Capitalism The factors of production are owned by individuals rather than the government Profit and competition regulate economic activity Socialism The factors of production are owned by the government which regulates economic activity

5. CAPITALISM-FREE ENTERPRISE Self-Interest regulates the economy by guiding the actions of consumers and producers Consumers want to buy cheapest product possible and producers take on ventures that have the potential to make money Prices are regulated by supply and demand Law of Supply – States that producers will supply more products when they can charge higher prices and fewer when they can charge lower prices Law of Demand – states that consumers will demand more of a product at lower prices and demand less of a product as price increases Adam Smith called this the invisible hand – forces will keep the economy in check if the government keeps interference to a minimum Laissez-faire Capitalism – no government interference – “let the people do as they choose”

7. SOCIALISM Under Socialism, a Communist government – system in which property is communally owned, forms and social classes cease to exist Theory pushed by Karl Marx due to the conflict between Proletariat and the Bourgeoisie Communism has never been executed in practice, only theory This is due to governments in communist societies forming Totalitarianism – those in power exercise complete authority over the lives of citizens NO opposition to government

8. KEY VOCABULARY Economic Institutions Factors of Production Primary Sector Secondary Sector Tertiary Sector Capitalism Socialism Law of Supply Law of Demand Invisible Hand Laissez-faire Free Enterprise Communist Totalitarianism