1. Chapter Seventeen The American Economy The Economic System ~~~~~ The Economic System at Work

3. Economic Systems help people create and obtain the goods they need vary around the world people need basic things to survive basic materials that people cannot live without food and water, shelter, clothing people want things to make their lives more comfortable items that are not necessary for survival television, cell phone, car people satisfy wants by obtaining goods and services want-satisfaction chain

4. Comparing Economic Systems 1.traditional economy production is based primarily on customs and traditions farming, fishing, artisans, barter economic roles are generally passed down in the family usually from father to son and from mother to daughter exist in various parts of the Americas, Asia, Australia, and Africa common in tribal communities 2.command economy – Cuba, North Korea (Communist) most economic decisions are made by the government owns or controls the capital, tools, and production equipment tells the managers and workers in factories and on farms what and how much to produce 3.market economy – U.S. (Capitalist) economic decisions are made by individuals looking after own best interests products and prices self regulate through supply and demand government does not tell people what to produce or buy based on economic freedoms

5. political freedoms free speech freedom of religion vote in free elections freedom of choice economic freedoms freedom to buy and sell freedom to compete freedom to earn a profit freedom to own property free market = the exchange between buyers and sellers who are free to choose limited role of the government in regulating the free market America’s Freedoms

6. buy and sell any legal product shoppers can search for the best quality goods and services at the lowest prices buyers are free to look elsewhere for the product producers are generally free to sell goods and services at prices they think buyers will pay producer is free to change the price or to sell something else Freedom to Buy and Sell

7. Freedom to Earn a Profit the reason that people start and operate businesses the reason that people invest in various businesses and valuable goods put money into businesses or valuable articles in hopes of making a profit profit motive desire to make money from a business or investment essential to a free economic system

8. Resources in the Free Market basic economic fact people's needs and wants are greater than the resources available there are never enough resources to meet all of our needs and wants every country must face this fact resources raw materials, manufactured parts skilled labor, valuable property scarcity problem of limited resources forces us to choose which needs and wants to satisfy with available resources U.S. economic system free market helps determine how Americans use limited resources successful businesses must supply what buyers in the market demand if consumers want scarce goods, they must pay the market price

9. Supply and Demand people demand goods and services, and businesses supply them the balance of supply and demand determines the prices and quantities of these goods and services relationship between supply and demand is predictable law of supply states that businesses will provide more products when they can sell them at higher prices and they will provide fewer products when they must sell those goods at lower prices law of demand states that buyers will demand more products when they can buy them at lower prices and they will purchase fewer products when they must purchase them at higher prices the supply of products in the economy and the demand for these products balance each other this balance provides buyers with what they need and want and provides businesses with profits supply and demand also affect the prices of goods and services

10. businesses compete with one another for customers business firms try to persuade people to buy what they have to offer consumers compete to purchase products supply and demand workers compete for jobs humans compete for natural resources free competition buyers show which goods and services they favor every time they make a purchase if consumers do not buy a product, producers will make something else or go out of business producers compete to make what they think the public will buy Freedom to Compete

11. American businesspeople are generally free to run their own businesses in the way they think best they do not depend on government officials to tell them how to operate they depend on their own ability and energy the freedom to compete without unreasonable governmental interference offers enterprising businesspeople the opportunity to enjoy success and profits freedom comes with many opportunities and risks business owners are free to earn profits they must accept losses if they make mistakes mistakes may cause owners to lose money and to close their businesses if their businesses fail, owners may lose all their capital if there is sufficient demand for a product or service, efficiently run businesses earn profits The Free Enterprise System

12. Freedom to Own Property guaranteed in the U.S. Constitution - 5 th Amendment the right to own and use their own land, personal belongings, and other kinds of property free market and free competition would not be possible without private ownership of property free to do as they like with their own money spend, save, or invest it may buy buildings, land, tools, and machines may be used to produce goods and services may be used start their own businesses and to earn profits right to protect their ideas and inventions Copyright = An exclusive right, granted by law, to publish or sell a written, musical, or art work for a certain number of years Patent = An exclusive right given to a person to make and sell an invention for a certain number of years

13. Capitalism capital money invested in buildings, machines, and other forms of property used to produce goods and provide services capitalist system U.S. economic system based on private or corporate ownership of capital capitalist anyone who has capital invested in a business the tools owned by a self-employed electrician are capital the machines of an automobile manufacturing company are capital capitalism encourages people to work and to invest so that they will do well financially and will improve their quality of life encourages businesspeople to supply Americans with the products and services they want, at prices they are willing to pay works for the benefit of the American people as a whole

14. monopoly when a company is the only firm selling a product or providing a service there is no competition for the product or service, so the monopolist controls the price people are forced to pay the asking price in order to acquire the product or service merger occurs when two or more companies combine to form one company may lead to the forming of a monopoly there is no longer real competition in the industry trust several companies create a board of trustees each company remains a separate business, but the board of trustees makes sure that the companies no longer compete with one another if all the companies in an industry become part of the trust, a monopoly is created Unfair Business Practices

15. Legal Monopolies in some industries monopolies are legally permitted public utilities companies that provide essential services to the public electric and natural gas providing such services requires very expensive capital equipment it would be wasteful to have more than one company providing the same service in the same area multiple electric and gas lines one company is allowed to have a monopoly in an area, but only under strict government regulation

16. Government’s Role mixed economy – U.S. the government controls certain parts of the economy benefits individuals, businesses, and society protecting people minimum wage worker safety (OSHA) no discrimination (EEOC) safe products (CPSC) right to unionize (NLRB) protecting the environment regulating pollutants (EPA) controlling prices subsidizing industries

17. American businesses have always been privately owned business decisions made by their owners pre-Civil War most businesses were small and served local needs few shippers, importers, and manufacturers became wealthy post-Civil War many big businesses developed businesses benefited from the development of new technology machines powered first by steam and later by electricity replaced hand labor and greatly increased the amount of goods produced placing machines in factories where large numbers of people were employed allowed businesses to produce large quantities of goods the costs of production were much lower than before the owners of large factories and businesses made huge profits some owners hoping to make great fortunes used business practices that would be considered unfair or illegal today Rise of Big Business

18. Importance of Big Business big businesses are essential to the economy many of the goods and services we need cannot be produced efficiently by small companies large and very expensive equipment is needed steel, electricity, automobiles, ships economies of scale the situation in which goods can be produced more efficiently by larger companies a few companies account for most of the production and sales in some industries today conglomerates large business combinations formed by the merger of businesses that produce, supply, or sell a number of unrelated goods may control communication systems, insurance companies, hotel chains, and many other types of businesses