Basics of our

Economic System

Chapter 14

Expanding the Circular Flow

People exchange their labor to buy goods and services from many businesses

Producers need land and the raw materials on the land

Producers also need capital, which includes tools and machines used in production

Rent- payment for the use of land and capital

Interest- is the payment for the use of capital

Supply and Demand Buyers and sellers exchange goods and services

through a market Markets determine how much will be produced in

a free-enterprise economy Households (people living in the same residence)

own the factors of production and consume goods and services, called factor markets

Business use resources provided by households to make and sell products, called product markets

Individuals are free to make choices about how to use resources to satisfy needs

The Law of Demand Demand- is the amount of a product of

service that buyers are willing and able to buy a different prices

Higher Price >>> Lower Demand Lower Price >>> Higher Demand

The Law of Supply Supply- the amount of a product that

producers are willing and able to offer at different prices

Higher Price >>> Higher Supply Lower Price >>> Lower Supply

Market Price- the price at which buyers and sellers agree

The Role of the Entrepreneur

Entrepreneur- person who starts a business

Risk is very high when a person starts oa business

Profit will be the total revenue earned minus the cost of the resources it uses

Payments for Resources

How Businesses are Owned

The Sole Proprietorship- business owned by an individual Advantages- freedom to decide how to run business, profits

are not split, personal satisfaction Disadvantages- bears responsibility for all debt, hard for one

owner to borrow enough money to expand, difficult to handle responsibilities

The Partnership- business in which two or more people share ownership Advantages and disadvantages are similar to sole

proprietorship, but more than one person shares the risks and benefits

One disadvantage is the possibility of serious differences arising between partners

The Corporation- business that is separate from the people who own it and legally acts as a single person The shares of ownership in a corporation are called stock People who buy stock are called stockholders

Supply and Demand Supply Increases > Price Decreases > Quantity

increases Supply Decreases > Price increases > Quantity

decreases Demand Increases > Price increases > Quantity

increases Demand Decreases > Price decreases > Quantity

decreases If the demand decreases, and the supply remains

the same, there will be a surplus. This will mean the price will go down

If the supply decreases, and the demand remains the same, there will be a shortage, and the price will increase

Example: Burrito Sales

Interactive Graph of Burrito Sales at Cafe Chico

Cafe Chico Story's

Market Economies Diminishing Marginal Utility-A psychological

generalization that the perceived value of, or satisfaction gained from, a good to a consumer declines with each additional unit acquired or consume

Substitutes-A product or service that satisfies the need of a consumer that another product or service fulfills Examples: Pepsi for Coke Tide for Gain

Complements-A good or service that is used in conjunction with another good or service. Usually, the complementary good has little to no value when consumed alone but, when combined with another good or service, it adds to the overall value of the offering. Also, good tends to have more value when paired with a complement than it does by itself. For example, if the price of hot dogs rises so much that people

stop consuming them, this will also cause a decrease in demand for hot dog buns.

The Rise of Labor Unions

Individual workers had litter power over wages and working conditions

Labor unions- organizations of workers that seek to improve wages and working conditions and to protect members’ rights The Noble Order of the Knights or Labor The American Federation of Labor

Collective bargaining- process by which representatives of the unions and business try to reach agreement about wages and working conditions

The Weapons of Labor and Business

Labor: Boycott- refuse to buy

(an employer’s products)

Strike- workers refuse to work unless employers meet certain demands

Slowdowns Boycotts Demonstrations

Sin-ins Business/Employee: Strikebreakers Security Forces Lockouts Yellow-dog Contracts Blacklists

Practice

Page 381 complete the Section 1 assessment (questions 1-3)