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Consumer Roles in the US & Global Economy Free Enterprise System 1 Consumer Roles in Economy Personal Economic Analysis The study of the roles people play in an economic system. Citizen Worker/Employee Consumer 2 Economics Today Economics The study of the process that involves making choices as people try to satisfy their needs and wants 3 Needs and Wants Write down at least 10 things you would like to buy within the next month. 4 Economics Today Wants and needs are met by obtaining goods and services Goods – are tangible, can be seen/touched Services – are intangible, cannot be seen/touched 5 Economics Today Scarcity – the lack of something that satisfies a want or need (unlimited wants and needs in a world with limited resources) Because of scarcity we must make choices, which lead to opportunity costs 6 Economics Today Unintended Effects - Things don’t always go as planned Opportunity Costs - The cost of an alternative that must be forgone in order to pursue something else Examples 7 Opportunity Cost What is given up to do something different. Save my money or go on vacation? 8 Economic Growth Economic Growth is measured by: Personal Income Consumer Gross Price Index Domestic Product Inflation Unemployment Rate 10 Gross Domestic Product Consumer Spending + Government Spending + Business Investment +Foreign Trade =GDP •The total value of all final goods and services in an economy 11 Inflation Inflation - When Prices Increase A dollar cannot buy as much as it used to 12 Inflation What can cause an increase in prices? Change in interest rates Surging economy 13 Inflation Who is Helped by Inflation? Who is Hurt by Inflation? 14 Helped or Hurt? A retired person who lives on fixed interest from bank certificates of deposit (CDs) 15 Helped or Hurt? A family that bought a house and has a fixed interest rate mortgage 16 Helped or Hurt? A retired teacher whose income comes from a fixed pension? 17 Helped or Hurt? A two income family. The wife is a medical doctor and the husband is a financial analyst? 18 Government & the Economy 19 Employment Labor Force – over 16, willing and able to work Underemployment - Job requires less skills than you have; working part-time instead of full-time Unemployment – over 16, not working, but actively seeking 20 Unemployment How well are we doing? 21 The Business Cycle Prosperity/Peak – The high point of a business cycle Recession/Contraction – Economy is in a period of decline Depression/Trough – The lowest point of a business cycle Recovery/Expansion – A rise in business activity after a recession or depression 22 Our Free Enterprise System The 45 40 35 30 25 20 15 10 5 0 Business Cycle prosperity prosperity recession recovery depression 1 2 3 years ---->> 4 5 6 7 8 9 10 11 12 23 Our Free Enterprise System What conditions would exist in an economy if there was: prosperity Prosperity/Peak •High employment •High demand for goods and services •Businesses producing as many goods and services as they can 24 Our Free Enterprise System What conditions would exist in an economy if there was: prosperity Recession/Contraction •Spending falls •Fewer goods and services demanded •Unemployment rises 25 Our Free Enterprise System What conditions would exist in an economy if there was: prosperity Depression/Trough •High unemployment •Low productivity 26 Our Free Enterprise System What conditions would exist in an economy if there was: prosperity Recovery/Expansion •Production starts to increase •Unemployment decreases •GDP grows 27 Four Factors of Production LAND LABOR CAPITAL ENTREPRENEURSHIP 28 Four Factors of Production Land – all natural resources, minerals, and other raw materials (land, water, vegetation, animal life, atmosphere) 29 Four Factors of Production Labor – the effort that a person devotes to a task for which they are paid 30 Four Factors of Production Capital Physical Human Liquid capital capital capital 31 Four Factors of Production Physical capital – humanmade resources used to produce other goods and services (equipment, tools, machinery, technology, buildings, factories) 32 Four Factors of Production Human capital – knowledge and skills a worker gains through education and experience (college degree, training, on-the-job experiences) 33 Four Factors of Production Liquid capital – Cash or money that can be used to purchase needed factors of production 34 Four Factors of Production Entrepreneurship – The people who organize land, labor, and capital to make goods and services; and assumes risk for the business 35 36 Global Economy Imports – goods coming in from another country Exports – goods going out to another country Outsourcing – building/making something overseas Tariffs – tax on imported/exported goods 37 Global Economy Does what’s happening in the rest of world effect the US? What if we didn’t export or import? Why is this international trade so important? Which countries are the most economically stable? 38 Global Economy Have computers changed the way business is done? 39 The Economic Policy of Supply & Demand 40 Quantity Supplied Supply - The number of products a business is WILLING & ABLE to sell at a specific price 41 Law of Supply Amount businesses are willing & able to produce at all prices As P S As P S 42 What changes Supply? # of Sellers/Competition Price of Factors of Production Price of Related Goods Price of Substitutes Government Natural Policy Disaster 43 Quantity Demanded Demand - The number of products a consumer is WILLING & ABLE to buy at a specific price 44 Law of Demand Amount consumers are willing & able to buy at all prices As P D As P D 45 What changes Demand? The # of Buyers Real Income Price of Related Goods Price of Substitutes Fads & Fashion 46 Price Elasticity of Demand Measure of the change in Demand as a result in the change of prices 47 Elastic vs. Inelastic Elastic – A large change in demand when there is a change in price •Luxuries •Many substitutes 48 Elastic vs. Inelastic Inelastic - Little or no change in demand when there is a change in price •Necessities •Not many substitutes 49 Supply and Demand We want the perfect situation Equilibrium--the number demanded of a product equals the number of sold of a product. 50 Equilibrium P S D Q 51 If there is not an equilibrium… Surplus When supply exceeds demand Shortage When demand exceeds supply 52 Surplus P S D Q 53 Shortage P S D Q 54 Economic Systems Traditional Economy Command Economy Market Economy 55 Economic Systems Traditional Closed Self Economy society sufficient/reliant Creates everything for themselves No imports/exports/trade Not worried about advancements 56 Economic Systems Command Complete Economy government control Government Prices Jobs owns all resources dictated dictated Manipulates supply and demand 57 Economic Systems Market Free Economy trade Entrepreneurship Government provides the little control that does exist Competition Supply market and demand dictates 58 Elements of Market Economy Profit Motive and Standard of Living 59 Devilonia 7 Economic Goals Freedom Opportunity Efficiency Stability Growth Equity Security 60 Freedom Consumers have a choice in the products and services they use. 61 Efficiency What is the best use for the available resources? 62 Growth Where do we want to be economically years from now? 63 Security Should our citizens be financially self reliant or should the government provide for them? 64 Opportunity Should our citizens make decisions based on their own experiences and they will find pleasure in? 65 Stability Is the value of our currency a concern of ours? 66