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OVERVIEW OF THE U.S. ECONOMY Types of World Economies • Traditional- based on certain customs and traditions • • Command- government makes all economic decisions • • Decide what will be made, how much, and who will own these goods Pure Market- government plays no role at all in making economic decisions • • Usually represented by hunting and gathering societies Goods and services exchanged without government involvement Mixed- can include elements of traditional, command, and market economies • Can be closer to pure markets or closer to command economies The Free-Enterprise System • Individuals have the right to: Own property • Make individual choices • Compete with others in the economy • Make economic decisions for their own benefit • • Two major groups of people in free-enterprise system: Consumers- people who decide to buy goods or services • Producers- person or company who provides goods or services • • Consumers influence producers’ decisions The Free-Enterprise System • Producers use human resources (labor to produce goods or services) and natural resources to meet demands of consumers • Federal government in the U.S. provides regulations, or guidelines, for businesses • How to use these resources fairly and efficiently The Circular Flow Model • Consumers, producers, and the government interact with each other in a free-enterprise system • The Circular-Flow Model demonstrates how these interactions/exchanges takes place Prices & The Marketplace • Consumers want low prices while producers prefer high prices • Supply & Demand • Demand is the amount of a good or service a customer is willing to buy at various prices for a set period of time • • If you want something and have the money to spend on it, you have contributed to the demand for that product/service Demand for a good/service is related to its price (law of demand) When price goes up, demand drops • When price goes down, demand increases • • • Supply is the quantity of goods/services that producers are willing to offer at various prices for a set period of time (supply can be affected by things like the weather) Supply of a good/service is related to its price (law of supply) Producers supply more when they can sell them at a higher price • Producers supply less when they can only sell them at a lower price • The Supply & Demand Curve Prices & The Market Place • Competition • Sometimes businesses make the same choice as to what to provide and for whom • • These businesses are in competition Competition is the economic rivalry among businesses selling similar products Encourages produces to improve or invent new products • Benefits consumers because it can lower the price of goods/services • • Competition tends to increase supply- a lack of competition can mean a lack of supply Prices & The Market Place • Surpluses & Shortages • When the Q (quantity) supplied is greater than the Q demanded, there is a surplus • • Surplus tells producers they are charging too much or something else is wrong with their product/service When the Q demanded is greater than the Q supplied, there is a shortage • Shortage tells producers they are charging too little and need to raise their prices How Your Choices Affect the Economy • You are free to save or invest your money • Many ways to invest: • • • Stocks and sharing in a company’s profits Bonds that can be repaid to you with additional interest You can also invest in new businesses • Venture capital helps entrepreneurs develops ideas into products and pay for the cost of running their business How Your Choices Affect the Economy • Business Investments • Corporations use revenue from stocks and bonds to improve their businesses and increase their profits • • Investment and Technology • New technology is developed when companies invest money in technological research and development • • Hire new employees, purchase new equipment, etc. etc. Can bring new products to the market, improve efficiency, help increase profits All investments involve a level of risk- successful investments not only benefit the investor, but the economy as a whole ? • What are the two major groups of a people in a free-enterprise system? Briefly describe both. • What is demand? Briefly describe the Law of Demand. Also, what is supply? Briefly describe the Law of Supply as well • What are three positive effects of competition in the market place? • What is a surplus and what does it say to the producer? What is a shortage and what does it say to the producer? • How do entrepreneurs, small businesses, and corporations use revenue from investments?