The American Economy. 3 Basic Economic Questions WHAT TO PRODUCE?! HOW TO PRODUCE?! FOR WHOM TO...

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 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

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)

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)

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)

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

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 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 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

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

The American Economy. 3 Basic Economic Questions WHAT TO PRODUCE?! HOW TO PRODUCE?! FOR WHOM TO...

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