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The Economic System at Work
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Economics = study of decision making in world w/ limited
resources
o System used to produce/distribute goods/services
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Vary all over world
o Want-satisfaction chain = goods/services to satisfy wants
o Competition = main factor in setting prices
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Traditional Economy – based on traditions, culture, hist
o Grow / make goods to survive
o Barter sys / trade
o Undeveloped countries
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Command Economy – govt makes all decisions
o Govt owns all factors of prod & nat resources
o Communist govts (Cuba & N. Korea)
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Market Economy – decisions made by the ppl
o Personal needs/interests put 1st
o Based on freedoms & rights
o Little/no govt interference
or reg
o Free market – right to buy
& sell goods as you choose
o Most countries
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Based on 5 economic freedoms
o Freedom to compete
o To own property
o To buy & sell
o Of workers to compete for jobs
o To earn profits
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Want to make profit – $ left after expenses
Competition for resources
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Supply & Demand:
o Most basic of all economic principals
o Leads to price changes
o Law of supply – if price goes ↑, supply goes ↑; if price goes ↓, supply
goes ↓
o Law of demand – if price goes ↑, demand goes ↓; if price goes ↓,
demand goes ↑
o Want balance / equilibrium price
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Free enterprise: bus. operate w/ little govt interference
o No limit on profits / no success guarantee
o Comp important for low prices, high quality
o Innovation – new ideas
o Patent – rights to sell for certain time
o Copyright – right to publish/sell writing, art, music
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Capitalism: productive resources privately owned
o Driving force of Amer econ
o Encourages $ investment to make $
o Freedom to buy/sell as you please
o Benefits society as a whole
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Monopolies: only 1 company selling product/service
o Usually banned in most market econ
o Price fixing / gouging occurs
o Quality = problem
o Natural monopolies are legal – certain public utilities
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Mixed economy – combines elements of diff econ sys
o Bus have freedom / regulations to meet
• Ex: wage laws, discrimination laws
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American business
o Large bus grew in late 1800s
o Big business essential
o Big businesses join together = conglomerates