Chapter 2: Chapter 2: EconomicsEconomics

Lesson 5Lesson 5

The Market EconomyThe Market Economy

The student willThe student will

interpret economic issues as interpret economic issues as expressed in maps, tables, diagrams, expressed in maps, tables, diagrams, and charts (i.e., automobile sales, and charts (i.e., automobile sales, unemployment rates, or airplane unemployment rates, or airplane production).production).

Overall, most free Overall, most free market economies work market economies work

well.well.

Consumers make Consumers make decisions on what to buy decisions on what to buy and how much they are and how much they are

willing to pay.willing to pay.In turn, producers decide In turn, producers decide what products they will what products they will

make, how they will make, how they will make them, and how make them, and how

much to sell them for.much to sell them for.

European SettlersEuropean Settlers

The first people from Europe to The first people from Europe to settle in what would become the settle in what would become the United States came for two main United States came for two main reasons.reasons.

One reason was to enjoy religious One reason was to enjoy religious freedom.freedom.

The other reason was to pursue The other reason was to pursue economic opportunities.economic opportunities.

These settlers came from These settlers came from England and other England and other

European countries. In European countries. In those countries, it was those countries, it was not easy for people to not easy for people to improve their lives.improve their lives.

European settlers in European settlers in North America wanted North America wanted more opportunities. more opportunities.

These colonists wanted These colonists wanted to live in a place where to live in a place where

their hard work, their hard work, intelligence, and intelligence, and

creativity would give creativity would give them a better life.them a better life.

The early settlers first The early settlers first started farms to grow the started farms to grow the

food they needed. But food they needed. But soon, they began to soon, they began to

develop businesses and develop businesses and trade, such as fishing, trade, such as fishing, lumber, tobacco, fur lumber, tobacco, fur

trading, cattle raising, trading, cattle raising, and crafts.and crafts.

Over time, the American Over time, the American colonies prospered. colonies prospered. People throughout People throughout

Europe heard of the Europe heard of the opportunities and opportunities and religious freedom religious freedom

available in the new land. available in the new land. Soon, they, too, Soon, they, too,

immigrated to America, immigrated to America, in search of a better life.in search of a better life.

At first, the newcomers At first, the newcomers settled in and around the settled in and around the East Coast. As towns and East Coast. As towns and farms grew, competition farms grew, competition for land and resources for land and resources

increased.increased.

As a result, people began As a result, people began to move west, where land to move west, where land

and natural resources and natural resources were less expensive and were less expensive and

more abundant. The more abundant. The United States quickly United States quickly

grew as more immigrants grew as more immigrants came.came.

In time, the growing In time, the growing nation would stretch nation would stretch

from the Atlantic Ocean from the Atlantic Ocean to the Pacific Ocean.to the Pacific Ocean.

Economic ForcesEconomic Forces

Several forces operate in a market Several forces operate in a market economy.economy.

These forces include supply and These forces include supply and demand, pursuit of profits, pricing, demand, pursuit of profits, pricing, competition, and the spending and competition, and the spending and earning of income. In the United earning of income. In the United States, individual people, businesses, States, individual people, businesses, and the government all take part in and the government all take part in activities that operate according to activities that operate according to these forces.these forces.

ProfitProfit

Consumers and producers affect one Consumers and producers affect one another through the principle of supply another through the principle of supply and demand. Businesses want to and demand. Businesses want to create a demand for their products so create a demand for their products so that consumers want to buy them.that consumers want to buy them.

This helps the businesses make a profit.This helps the businesses make a profit. A A profitprofit is the amount of money a is the amount of money a

business can earn above the amount it business can earn above the amount it must spend to make its products.must spend to make its products.

ProfitProfit

For example, a company that makes For example, a company that makes fresh orange juice must buy oranges fresh orange juice must buy oranges and containers to put the orange juice and containers to put the orange juice in. It must also operate a factory to in. It must also operate a factory to squeeze the oranges and put the juice squeeze the oranges and put the juice into the containers. It has to pay into the containers. It has to pay workers to operate the factory. workers to operate the factory. Finally, it must pay to transport the Finally, it must pay to transport the bottles of orange juice to stores.bottles of orange juice to stores.

ProfitProfit

All of these activities cost money.All of these activities cost money. A business needs to be able to sell A business needs to be able to sell

its orange juice for more money that its orange juice for more money that it costs to make it. it costs to make it.

It can use the profits to create new It can use the profits to create new businesses or to expand. This helps businesses or to expand. This helps the economy grow.the economy grow.

CompetitionCompetition

CompetitionCompetition is another economic force. is another economic force. Competition is good for an economy. Competition is good for an economy. If only one company in the entire If only one company in the entire

country made orange juice, anyone who country made orange juice, anyone who wanted to drink orange juice would have wanted to drink orange juice would have to buy it from that company. If to buy it from that company. If consumers had a strong demand for consumers had a strong demand for orange juice, the company might be able orange juice, the company might be able to charge as much as they wanted for it.to charge as much as they wanted for it.

CompetitionCompetition

Or they might find Or they might find ways to make ways to make better-tasting better-tasting orange juice. In orange juice. In this way, this way, competition keeps competition keeps prices at a fair prices at a fair level. It also helps level. It also helps keep the quality of keep the quality of products high.products high.

CompetitionCompetition

The government makes laws and The government makes laws and rules to make sure that businesses rules to make sure that businesses compete fairly.compete fairly.

They have passed laws to make it They have passed laws to make it illegal for any one company to illegal for any one company to control a type of business. Such control a type of business. Such controls are designed to protect controls are designed to protect competition so that the economy competition so that the economy stays healthy and grows.stays healthy and grows.

Expressing Economic Expressing Economic IssuesIssues

As you’ve learned, the study of As you’ve learned, the study of economics involves a lot of different economics involves a lot of different factors. These factors include factors. These factors include supply and demand, consumers and supply and demand, consumers and producers, pricing, and competition. producers, pricing, and competition.

All of these factors relate to one All of these factors relate to one another in sometimes complicated another in sometimes complicated ways.ways.

Studying economics also involves comparing numbers – for example, the cost of doing business or the price of goods – and how they change over

time. The relationships among economic factors are often

clearer when they are expressed in the form of

graphs, diagrams, maps, and charts.

GraphsGraphs

Drawings that show how different numbers Drawings that show how different numbers compare to one another are called compare to one another are called graphs.graphs.

They can also show how numbers change over They can also show how numbers change over time.time.

Graphs are very useful in economics.Graphs are very useful in economics.

Line GraphsLine Graphs

A line graph is made with a vertical, or A line graph is made with a vertical, or up-and-down, axis, or scale, and a up-and-down, axis, or scale, and a horizontal, or left-to-right, axis. horizontal, or left-to-right, axis.

A line graph can show the production or A line graph can show the production or price of a product over time.price of a product over time.

It can show the relationship between It can show the relationship between price and the amount of something sold.price and the amount of something sold.

Line graphs can be used to show many Line graphs can be used to show many other kinds of economic information as other kinds of economic information as well.well.

Circle GraphsCircle Graphs

A circle graph, or pie chart, as it is A circle graph, or pie chart, as it is sometimes called, shows how the parts sometimes called, shows how the parts of something relate to the whole. It of something relate to the whole. It looks like a circle that is divided into looks like a circle that is divided into wedges. wedges.

In economics, a circle graph can show In economics, a circle graph can show what a family spends its total income on.what a family spends its total income on.

It can also show the main products of a It can also show the main products of a company.company.

Circle GraphsCircle Graphs

Bar GraphsBar Graphs

A bar graph expresses amount with A bar graph expresses amount with bars of different lengths.bars of different lengths.

A bar graph is often used to compare A bar graph is often used to compare how the amount of something how the amount of something changes over time.changes over time.

Bar graphs are used to compare Bar graphs are used to compare amounts of different things.amounts of different things.

Bar GraphsBar Graphs

MapsMaps

Maps are used in economics to show Maps are used in economics to show where economic activities take place. where economic activities take place.

They are also useful in comparing They are also useful in comparing economic conditions in various economic conditions in various places.places.

Maps can show where products are Maps can show where products are produced and where they are used. produced and where they are used.

They can also show economic facts They can also show economic facts such as incomes, tax rates, and such as incomes, tax rates, and spending in various places.spending in various places.

MapsMaps

DiagramsDiagrams

A diagram is a drawing that shows A diagram is a drawing that shows important parts of something. It important parts of something. It may use pictures, lines, symbols, and may use pictures, lines, symbols, and words to show clearly what a thing words to show clearly what a thing is or how it works.is or how it works.

In economics, a diagram can be used In economics, a diagram can be used to show how a product is made and to show how a product is made and sold, how countries trade with one sold, how countries trade with one another, or many other processes.another, or many other processes.

Show What You KnowShow What You Know

With a partner, make up a business plan With a partner, make up a business plan for a lemonade stand. Decide how much for a lemonade stand. Decide how much profit you want to make on your lemonade. profit you want to make on your lemonade.

Say it costs you ten cents to make 8 Say it costs you ten cents to make 8 ounces of lemonade. You also have to buy ounces of lemonade. You also have to buy paper cups that cost a penny each. paper cups that cost a penny each.

How much do you think you should charge How much do you think you should charge for each glass so that you make a profit? for each glass so that you make a profit? Will your customers be willing to pay what Will your customers be willing to pay what you want to charge? you want to charge?

1. Which of the 1. Which of the following statements following statements

about why the about why the government passes laws government passes laws

about business is not about business is not true?true?

A.A. Laws protect the ability Laws protect the ability of businesses to of businesses to

compete.compete.B. Laws can help one B. Laws can help one company to control a company to control a

type of business.type of business.C. Laws help keep C. Laws help keep products safe for products safe for

consumers.consumers.D. Laws ensure D. Laws ensure

competition among competition among different businesses.different businesses.

1. Which of the 1. Which of the following statements following statements

about why the about why the government passes laws government passes laws

about business is not about business is not true?true?

B. Laws can help one company to B. Laws can help one company to control a type of business.control a type of business.

2. Why did the first settlers 2. Why did the first settlers come to the United States?come to the United States?

A. They had products to sell and A. They had products to sell and were looking for new markets.were looking for new markets.

B. They wanted more economic B. They wanted more economic opportunities.opportunities.

C. There was no land for sale in C. There was no land for sale in Europe.Europe.

D. The cost of goods and services D. The cost of goods and services was too high in England.was too high in England.

2. Why did the first settlers 2. Why did the first settlers come to the United States?come to the United States?

B. They wanted more economic B. They wanted more economic opportunities.opportunities.

3. What information does the vertical axis of the line graph

give?

A. The mileage on the carA. The mileage on the car B. The years for which the B. The years for which the

information is collectedinformation is collected C. The title of the graphC. The title of the graph D. The value of the carD. The value of the car

3. What information does the vertical axis of the line

graph give?

D. the value of the carD. the value of the car