1. The Economic System Chapter 17 The Economic System at Work p 447-460
Business Organization p
Making Business Decisions p

2. part 1: The Economic System at Work
Economic Systems
part 1: The Economic System at Work

3. Economic Systems
How people get the things they want is determined by a country’s economic system
The nature of economic systems varies widely from place to place
Economic systems help people create and obtain the goods and services they need

4. People satisfy their WANTS by obtaining goods and services
Needs vs. Wants
NEEDS
WANTS
Requirements to survive
All people have same needs:
Food and water
Shelter
Clothing
They never change
They are objective
Things to make life easier & more enjoyable
Cars, computer, cell phone
Different people have different wants
They are subjective
May change over time
People satisfy their WANTS by obtaining goods and services
How people obtain goods and services is determined by their economic system

5. Free Market
People are free to own property, to create companies and to buy products as they choose
Free Market is the right to buy & sell goods as you want
Companies must be free to compete with each other
Competition among sellers is the main factor in setting prices
Sellers try to set their prices lower than their competitors so people will buy them
But can’t set prices so low that they don’t make a profit

6. Wants satisfaction chain
the process of obtaining goods and services to satisfy your wants
Human wants
Use resources to produce
Results in goods and services
Makes goods available for consumption
Want satisfaction achieved

7. 3 Types of Economic Systems
Traditional
Economic decisions based on past activity
Subsistent -Grow own food and make own goods
Barter for needed goods
May or may not use money for trade
Command
Government makes all economic decisions
Government controls all capital, tools and production equipment
Complete Government control of production
What can produce
How much to produce
How much to charge for it
Communist countries used command system
N. Korea & Cuba
Market
Economic decisions made by Individuals in personal and family best interest
Anyone can start a business as long as product is legal
Set prices based on what market will bear
Opposite of a command economy
Based on Freedom of choice
United States and most other countries use

8. Review Need vs. Want Want-Satisfaction chain 3 basic Economic Systems
Want established
Find resources to create product
Results in a product
Product available to consume
product purchased and want satisfied
3 basic Economic Systems
Traditional
Command
Market
Free Market

9. part 2: The Economic System at Work
Life in a Market Community
The US Economic System
part 2: The Economic System at Work

10. Competition for resources
Profit is the money that a business has left after it has paid its expenses
Profit motive – desire to make a profit
In order to make profit have to provide goods or services
Need resources to make a product
Resources are limited
Must compete for resources
Competition eventually affects price of goods
Profit
Provide goods or services
Limited Resources
Compete for resources
price of goods

11. Scarcity- the lack of a particular resource
When a resource is scarce, it is harder for producers get
Products made with that resource are also harder to get
The result, prices for these products rise

12. Law of Supply & Demand Law of Supply Law of Demand
BUSINESSES will produce more products when they can sell them at higher prices
BUISNESSES will produce fewer products when prices are low
Businesses are more eager to provide a product for a high price than a low price
Ex: Mowing lawns
BUYERS will demand a greater quantity of goods when its price is low
As price rises BUYERS will buy less of the product and demand will fall
Buyers are more eager to buy a product for a low price than a high price
Ex: Buying CD’s

13. Goal is for Supply of a product & Demand for a product to balance each other

14. Balancing Supply & Demand
You are selling lemonade
It costs $1 to make a glass of lemonade
If you sell a glass for $10
you will make lots of profit
not many people will want to buy it – low demand
You will have lots of lemonade left over – high supply
If you sell a glass for 5 cents
You will lose money
Lots of people will want to buy it – high demand
You won’t have any lemonade – low supply supply
If you sell a glass for $2
you will make profit
Average amount of people will buy it - balanced demand
You will have enough supply – balanced supply

16. Free Enterprise
Free Enterprise – businesses may operate however they see fit, with little direction or influence by government
Offers the opportunity to make HUGE profits
Bill Gates – Microsoft
Steve Jobs – Apple
Possibility of huge profits also mean possibility of huge losses
Main Risk that business men face in Free Enterprise System is that their business might fail
Competition is vital to free enterprise
Competition is main factor in setting prices
Competition drives companies to improve products

17. Innovation & Free Enterprise
Innovation is important to Free Enterprise
Improve old products
create new products

18. Protecting Innovations
Patent – exclusive right to sell your invention for a certain # of years
Copyright – exclusive right to publish or sell a piece of writing, music or art

19. Capitalism
Capitalism is an economic system in which productive resources are owned by private citizens
Capitalism is closely linked to market economy
People are free to buy and sell as they please
Capitalism encourages people to invest their money in companies
If company is successful can make huge profits and those profits are passed on to the investors

20. What Consumers want Businesses produce

21. Monopolies
Competition is good for economy, lack of competition weakens economy
Monopoly - where only 1 company is selling a product or providing a service
A company with a monopoly can set any price it wants
Monopolies are illegal in the US
The US government watches businesses to see that no new monopolies are formed

22. Mixed Economy
Government regulations are meant to protect people, they protect workers, the natural environment and control some prices through subsidies

23. American Business Today most companies in America are huge
McDonalds
Apple
Nike
In the early days of America most businesses were small
In the late 1800’s large business began to develop in the US
Today Big Business is essential to the US economy
Conglomerates –a merger of businesses that produce, supply or sell a number of unrelated goods
GE General Electric
Dow Chemical
Time Warner
Today there is a mix of large and small companies

24. Review Profit – Scarcity- Law of Supply – Law of Demand –
is the money a business has left after it has paid its expenses
Scarcity-
is the lack of a particular resource
Law of Supply –
businesses will produce more products when they can sell them at a higher rate
Law of Demand –
buyer will demand a greater quantity of a good when the price is low
Free Enterprise –
business owners will operate however they see fit
Capitalism –
encourages people to invest their money
Monopoly –
a company that so dominates the market that it is effectively the a product or service
Government regulation is used
to protect citizens and the natural environment

25. part 2: Business Organizations
American businesses may be organized as sole proprietorships, partnerships, corporations, or nonprofit organizations P
Economic Systems
part 2: Business Organizations

26. Types of business Organization
How your business is organized depends on its size and complexity
American businesses may be organized as
Sole proprietorships
Partnerships
Corporations
Nonprofit organizations

27. Sole Proprietorship Partnership
A small businesses owned by one person
Owners keep all profits
Owner supply capital, hire help, and pay taxes;
Owner solely responsible for losses
Not permanent, Proprietorship ends at death of owner
Most US businesses are sole proprietorships
Two or more people share responsibilities, costs, profits, and losses
Partnerships have same responsibilities and risks as Sole proprietorship
Often more successful than sole proprietorships
Problems arise if partners don’t agree on running of business
Not permanent, partnership ends at death of a partner

28. Corporation
Permanent organizations, most common form for large companies
Raise money by selling stocks
Shareholders receive a portion of the profits in relation to their holdings. - dividends
States issue charters of incorporation, and corporation obeys regulations.
Stockholders elect directors and vote on changes.
Board of directors selects corporate officers to oversee daily operations.
No one is responsible for a corporation’s debt if it fails

29. Basic organizational structure of a Corporation

30. The 5 Most Important Features of a Corporation
raising money
securing the rights to operate
meeting debt responsibilities
choosing executives
electing directors

31. Preferred Stock Common Stock
Less risky
Dividends guaranteed if company is profitable
Stockholders do not usually vote in company’s affairs
more risky
Dividends only when company is very profitable
Benefits include
possibility of higher dividends
increased stock value
voting on company’s affairs

32. Non-Profit Organization
Businesses that provide good and services without seeking a profit
Do not make a profit so are not taxed by government
Most use donations from individuals to operate

33. Non- Profit Organizations

34. part 2: Making Business Decisions
Business owners must make decisions about their use of natural resources, capital, labor, and entrepreneurship. Business owners are free to make these decisions with little interference from the government P
Economic Systems
part 2: Making Business Decisions

35. 4 factors of production Natural Resources Capital Labor
Entrepreneurship

36. Natural Resources Are the raw materials needed for business
and the physical space the business occupies
Natural resources are limited
Only a factor when it affects the cost of the good produced
The physical location of a business is a key to it’s success

37. Capital Capital—is the resources you need to start a business
Capital Goods
physical stuff you need to create a product
Financial Capital
Money used to buy capital goods

38. Labor Entrepreneurship
The workers required to produce the good or service of the business
Workers can be paid hourly wages or salaried earnings
Productivity - the amount of work produced by a worker per hour
Entrepreneurship
initiative, decisions, risks, and management involved in a business
Entrepreneurs put up own capital and take all the risk of failure
Great Risk = Great Profit or Great Failure

40. Government influences businesses through REGULATION
Protects against monopolies
Protects a person’s right to own property
Buy and sell goods and services
Taxes businesses
Small Business Administration
Protects worker’s health and safety
Minimum wage
discrimination
MAJOR DEBATE OVER HOW MUCH FEDERAL REGULATION OF BUSINESS THERE SHOULD BE.

41. Extra slides

42. A Mixed Economy There is some government regulation of the economy
Government regulations are meant to protect people
Regulations to protect workers
Minimum wage
Worker safety
discrimination
Regulations to protect natural environment
Limits on chemicals released into air & water
Regulations to control prices
Government subsidies - $ paid to farmers to limit or increase production of a crop