OVERVIEW OF THE US
ECONOMY
UNIT 7
PAGES 556-560
OVERVIEW OF BASIC ECONOMIC
SYSTEMS
• Traditional: based on customs and traditions
• Command: government officials make all ecnomic
decisions
• Market: mostly up to individuals producing and
consuming
• Mixed: can include elements of traditional,
command, and market
• This is what most economies are today
THE FREE-ENTERPRISE SYSTEM
• The US economy is also referred to as a freeenterprise system.
• Under this type of system, individuals have the right
to own private property and to make individual
choices about how to use that property and how to
make money.
• Consumer: a person who buys goods and services.
• Producer: person or company that provides goods
and services.
CIRCULAR FLOW MODEL
PRICES AND SUPPLY AND DEMAND
• The connection between quantity demanded for a
good or service and its price is described by the law
of demand.
• Supply is the quantity of goods and services that
producers are willing to offer at various possible
prices during a given time period.
• Prices and quantity supplied are related.
• The interaction of supply and demand establishes a
price, called the equilibrium price, at which
consumers are willing to buy all of the goods that
producers are willing to make.
INVESTMENT AND THE ECONOMY
• In the US, you are free to save your money or invest
it.
• One popular way to invest your money is through
stocks.
• You can also invest directly in starting a new
business.
• Money invested by outsiders to help new businesses grow is
called venture capital.
• Many companies use their own money to invest in
technological research and development.
ADAM SMITH’S IDEAS
• Wrote “Wealth of Nations”
• Gave basic outline of economic theories in market
economies.
• Invisible hand: supply, demand, competition will regulate
free market
• Laissez Faire: government should not interfere with the
economy
• Hands off approach