Download The American Economy

The American
Economy
3 Basic Economic
Questions
WHAT
TO
PRODUCE?!
HOW
TO
PRODUCE?!
FOR WHOM
TO PRODUCE?!
ECONOMIC
RESOURCES
FACTORS of
PRODUCTION
Natural
Human/ Labor
Capital
Entrepreneur
Resources
NATURAL
HUMAN
CAPITAL
WATER
►Labor
$ Money
LAND
►Mgt.
$ tools
TREES
$ machinery
OIL
$ building
Etc.
Gross Domestic Product
Gross Domestic Product
• Total value (in $) of all the final goods and
services produced in a country during a
single year
• used goods NOT included !!
Measuring GDP
• Multiply the quantity of each good by its price, then add the
dollar amount.
• GDP is a measure of standard of living-- the quality of life
based on the possession of necessities and luxuries that make
lie easier
ECONOMIC
ACTIVITY
&
PRODUCTIVITY
Circular Flow of Economic Activity
Consumer
Sector
•Consumers earn $ in the FACTOR MARKET
• Wages are given in exchange for labor
Business
Sector
•Consumers spend $ in PRODUCT
MARKETS
•Business Sector receives payments for the
goods & services spent in Product Market
•Businesses use this $ to pay for resources
Government
Sector
•Made of all 3 levels of government: LOCAL,
STATE, & NATIONAL
•Government Sector produces goods &
services: national defense, health, education,
transportation & housing ---- therefore
receives revenue– however, most revenue
comes from taxes
Government sector also acts as a consumer
Foreign
Sector
•Sell to AND buy from other nations
•Value of products bought and sold tends to
offset each other
• Results in less than 4% of nation’s GDP
PRODUCTIVITY
SPECIALIZATION
HUMAN CAPITAL
• measure of amount
of output produced by
given amount of inputs
in a specific period of
time
•Concentration on production of
certain goods or services
•The sum of
abilities, skills, and
motivation of people
•Goes up when more
can be produced in
same amount of time
• need to use
resources efficiently
DIVISION OF LABOR
•Breaking a job down into
smaller tasks
•Skill development
•Depend on others for other
items needed as consumers
•Improves productivity
PRODUCTIVITY
&
ECONOMIC
GROWTH
•Gov’t and business
invest in training,
healthcare and
employee motivation
to increase
productivity
•Employers get
better products and
better profits
•Employees get
higher pay, better
jobs, and job
satisfaction
ECONOMIC INTERDEPENDENCE
•Mutual reliance for goods and services
•What is going on in another country
could affect our economy
CAPITALISM
&
FREE
ENTERPRISE
FEATURES of CAPITALISM
 MARKETS




Set prices
Connect the sectors of the economy
DOLLAR VOTE
consumer sovereignty
 ECONOMIC FREEDOM
 C-H-O-I-C-E
 Accept consequences of decisions
FEATURES of CAPITALISM (cont’d)
 PRIVATE PROPERTY RIGHTS
 Freedom to own and use our own property as
we choose
 Provides incentive: to work, save, invest,
maintain
 COMPETITION
 Keeps prices low and quality of goods high
 Rewards efficient producers
 Forces others out
FEATURES of CAPITALISM (cont’d)
 THE PROFIT MOTIVE
 The hope for financial gain
 Profit= amount left over after all costs of production
have been paid
 VOLUNTARY EXCHANGE
 Buyers and sellers willingly exchanging in market
transactions
 Who benefits?
 BOTH!!
SPREAD of CAPITALISM
 Adam Smith
 1776, Wealth of Nations
 Described life and trade
in England
 Described basic
principles of
economics
SPREAD of CAPITALISM (cont’d)
LAISSEZ-FAIRE
French, “to let alone”
Hands off approach to business
Government should NOT interfere with the
market place
 A strictly limited role for government in
the economy




The ECONOMY
&
YOU
CONSUMER RIGHTS &
RESPONSIBILITIES
 PROTECTING CONSUMER RIGHTS





caveat emptor – let the buyer beware!
Consumerism
Fair Packaging and Labeling Act
Pure Food and Drug Act 1906
Better Business Bureau
CONSUMER RIGHTS &
RESPONSIBILITIES (cont’d)
 CONSUMER BILL OF RIGHTS






(Started under JFK, re-addressed under Nixon)
Right to a SAFE PRODUCT
Right to BE INFORMED
Right to CHOOSE
Right to BE HEARD
Right to REDRESS
CONSUMER RIGHTS &
RESPONSIBILITIES (CONT’D)
 CONSUMER RESPONSIBILTIES
 REPORT the problem IMMEDIATELY
 KEEP records of efforts to resolve problem
 EXHIBIT ethical behavior
Decision Making
Disposable Income
Uses of Income
Discretionary
Income
What are your goals?
YOUR ROLE
as a
CONSUMER
Saving for the Future
Deciding about
your Savings
Saving
Saving Regularly
Interest