The American Economy. 3 Basic Economic Questions WHAT TO PRODUCE?! HOW TO PRODUCE?! FOR WHOM TO...
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Transcript of The American Economy. 3 Basic Economic Questions WHAT TO PRODUCE?! HOW TO PRODUCE?! FOR WHOM TO...
The American The American EconomyEconomy
The American The American EconomyEconomy
3 Basic Economic 3 Basic Economic QuestionsQuestions
WHAT TO PRODUCE?!
HOW TO PRODUCE?!
FOR WHOM TO PRODUCE?!
ECONOMIC RESOURCESECONOMIC RESOURCES
FACTORS of PRODUCTIONFACTORS of
PRODUCTIONHuman/ Labor
Capital
Entrepreneur
Natural
ResourcesResources
NATURALNATURAL HUMANHUMAN CAPITALCAPITAL
WATERWATER
LANDLAND
TREESTREES
OILOIL
Etc.Etc.
►LaborLabor
►Mgt.Mgt.
$ MoneyMoney
$ toolstools
$ machinerymachinery
$ buildingbuilding
Gross Domestic Product
Gross Domestic Product
Gross Domestic ProductGross Domestic Product
• Total value (in $) of all the final goods and services produced in a country during a single year
• used goods NOT included !!
• Total value (in $) of all the final goods and services produced in a country during a single year
• used goods NOT included !!
Measuring GDPMeasuring GDPMeasuring GDPMeasuring GDP• Multiply the quantity of each good by Multiply the quantity of each good by
its price, then add the dollar amount.its price, then add the dollar amount.• GDP is a measure of GDP is a measure of standard of standard of
living--living-- the quality of life based on the the quality of life based on the possession of necessities and luxuries possession of necessities and luxuries that make lie easierthat make lie easier
• Multiply the quantity of each good by Multiply the quantity of each good by its price, then add the dollar amount.its price, then add the dollar amount.
• GDP is a measure of GDP is a measure of standard of standard of living--living-- the quality of life based on the the quality of life based on the possession of necessities and luxuries possession of necessities and luxuries that make lie easierthat make lie easier
ECONOMIC ECONOMIC ACTIVITY ACTIVITY
& & PRODUCTIVITYPRODUCTIVITY
ECONOMIC ECONOMIC ACTIVITY ACTIVITY
& & PRODUCTIVITYPRODUCTIVITY
Circular Flow of Economic Circular Flow of Economic ActivityActivity
Circular Flow of Economic Circular Flow of Economic ActivityActivity
Consumer Sector
•Consumers earn $ in the FACTOR MARKET
• Wages are given in exchange for labor
Business Business SectorSector
•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 Government SectorSector
•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 Foreign SectorSector
•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 &
ECONOMIC GROWTH
PRODUCTIVITY
• measure of amount of output produced by given amount of inputs in a specific period of time
•Goes up when more can be produced in same amount of time
• need to use resources efficiently
SPECIALIZATION
•Concentration on production of certain goods or services
•Depend on others for other items needed as consumers
•Improves productivity
DIVISION OF LABOR
•Breaking a job down into smaller tasks
•Skill development
HUMAN CAPITAL
•The sum of abilities, skills, and motivation of people
•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 CAPITALISM & &
FREE FREE ENTERPRISEENTERPRISE
CAPITALISM CAPITALISM & &
FREE FREE ENTERPRISEENTERPRISE
FEATURES of CAPITALISMFEATURES of CAPITALISMFEATURES of CAPITALISMFEATURES of CAPITALISM MARKETSMARKETS
Set pricesSet prices Connect the sectors of the economyConnect the sectors of the economy DOLLAR VOTEDOLLAR VOTE consumer sovereigntyconsumer sovereignty
ECONOMIC FREEDOMECONOMIC FREEDOM C-H-O-I-C-EC-H-O-I-C-E Accept consequences of decisionsAccept consequences of decisions
MARKETSMARKETS Set pricesSet prices Connect the sectors of the economyConnect the sectors of the economy DOLLAR VOTEDOLLAR VOTE consumer sovereigntyconsumer sovereignty
ECONOMIC FREEDOMECONOMIC FREEDOM C-H-O-I-C-EC-H-O-I-C-E Accept consequences of decisionsAccept consequences of decisions
FEATURES of CAPITALISM FEATURES of CAPITALISM (cont’d)(cont’d)
FEATURES of CAPITALISM FEATURES of CAPITALISM (cont’d)(cont’d)
PRIVATE PROPERTY RIGHTSPRIVATE PROPERTY RIGHTS Freedom to own and use our own Freedom to own and use our own
property as we chooseproperty as we choose Provides incentive: to work, save, Provides incentive: to work, save,
invest, maintaininvest, maintain COMPETITIONCOMPETITION
Keeps prices low and quality of Keeps prices low and quality of goods highgoods high
Rewards efficient producers Rewards efficient producers Forces others outForces others out
PRIVATE PROPERTY RIGHTSPRIVATE PROPERTY RIGHTS Freedom to own and use our own Freedom to own and use our own
property as we chooseproperty as we choose Provides incentive: to work, save, Provides incentive: to work, save,
invest, maintaininvest, maintain COMPETITIONCOMPETITION
Keeps prices low and quality of Keeps prices low and quality of goods highgoods high
Rewards efficient producers Rewards efficient producers Forces others outForces others out
FEATURES of CAPITALISM FEATURES of CAPITALISM (cont’d)(cont’d)
FEATURES of CAPITALISM FEATURES of CAPITALISM (cont’d)(cont’d)
THE PROFIT MOTIVETHE PROFIT MOTIVE The hope for financial gainThe hope for financial gain Profit= amount left over after all costs of Profit= amount left over after all costs of
production have been paidproduction have been paid
VOLUNTARY EXCHANGEVOLUNTARY EXCHANGE Buyers and sellers willingly exchanging in Buyers and sellers willingly exchanging in
market transactionsmarket transactions Who benefits?Who benefits? BOTH!!BOTH!!
THE PROFIT MOTIVETHE PROFIT MOTIVE The hope for financial gainThe hope for financial gain Profit= amount left over after all costs of Profit= amount left over after all costs of
production have been paidproduction have been paid
VOLUNTARY EXCHANGEVOLUNTARY EXCHANGE Buyers and sellers willingly exchanging in Buyers and sellers willingly exchanging in
market transactionsmarket transactions Who benefits?Who benefits? BOTH!!BOTH!!
SPREAD of CAPITALISMSPREAD of CAPITALISMSPREAD of CAPITALISMSPREAD of CAPITALISM
Adam SmithAdam Smith 1776, 1776, Wealth of Wealth of
NationsNations Described life and Described life and
trade in Englandtrade in England Described basic Described basic
principles of principles of economicseconomics
Adam SmithAdam Smith 1776, 1776, Wealth of Wealth of
NationsNations Described life and Described life and
trade in Englandtrade in England Described basic Described basic
principles of principles of economicseconomics
SPREAD of CAPITALISM SPREAD of CAPITALISM (cont’d)(cont’d)
SPREAD of CAPITALISM SPREAD of CAPITALISM (cont’d)(cont’d)
LAISSEZ-FAIRELAISSEZ-FAIRE French, “to let alone”French, “to let alone” Hands off approach to businessHands off approach to business Government should NOT interfere Government should NOT interfere
with the market placewith the market place A strictly limited role for A strictly limited role for
government in the economygovernment in the economy
LAISSEZ-FAIRELAISSEZ-FAIRE French, “to let alone”French, “to let alone” Hands off approach to businessHands off approach to business Government should NOT interfere Government should NOT interfere
with the market placewith the market place A strictly limited role for A strictly limited role for
government in the economygovernment in the economy
The ECONOMYThe ECONOMY& &
YOUYOU
The ECONOMYThe ECONOMY& &
YOUYOU
CONSUMER RIGHTS & CONSUMER RIGHTS & RESPONSIBILITIESRESPONSIBILITIES
CONSUMER RIGHTS & CONSUMER RIGHTS & RESPONSIBILITIESRESPONSIBILITIES
PROTECTING CONSUMER RIGHTSPROTECTING CONSUMER RIGHTS caveat emptorcaveat emptor – let the buyer – let the buyer
beware!beware! ConsumerismConsumerism Fair Packaging and Labeling ActFair Packaging and Labeling Act Pure Food and Drug Act 1906Pure Food and Drug Act 1906 Better Business BureauBetter Business Bureau
PROTECTING CONSUMER RIGHTSPROTECTING CONSUMER RIGHTS caveat emptorcaveat emptor – let the buyer – let the buyer
beware!beware! ConsumerismConsumerism Fair Packaging and Labeling ActFair Packaging and Labeling Act Pure Food and Drug Act 1906Pure Food and Drug Act 1906 Better Business BureauBetter Business Bureau
CONSUMER RIGHTS & CONSUMER RIGHTS & RESPONSIBILITIES RESPONSIBILITIES (cont’d)(cont’d)
CONSUMER RIGHTS & CONSUMER RIGHTS & RESPONSIBILITIES RESPONSIBILITIES (cont’d)(cont’d)
CONSUMER BILL OF RIGHTSCONSUMER 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 BILL OF RIGHTSCONSUMER 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 RIGHTS & RESPONSIBILITIES (CONT’D)
CONSUMER RESPONSIBILTIES REPORT the problem IMMEDIATELY KEEP records of efforts to resolve
problem EXHIBIT ethical behavior
CONSUMER RESPONSIBILTIES REPORT the problem IMMEDIATELY KEEP records of efforts to resolve
problem EXHIBIT ethical behavior
YOUR ROLE
as a
CONSUMER
Uses of Income
Decision Making
What are your goals?
Saving for the Future
Saving Regularly
Deciding about your Savings
Disposable Income
Discretionary Income
Saving
Interest