Chapter 5
The U.S. Economic System
5.1 What is Economics?
• Economics= how we use scasre resources
to produce and distribute scasre resources
to produce and distribute goods and
services that satisfy people’s wants and
needs
{Study of choices about using resources}
• Macroeconomics= on a national and
global scale, concerned with the
economic decisions made by
governments
• Microeconomics= economic decisions
made by individual people and
businesses
Economic Systems
• The way a society uses resources to
satisfy its people’s needs and wants
• Economic resources- money, time, skills,
tools.
• Scarcity = trying to satisfy unlimited wants
with limited resources
• Opportunity cost= what we give up in order
to something else.
3 Basic Questions
• 1. What will be produced?
• 2. How will they be produced?
• 3. Who should share the goods and
services that are produced?
• How an economy answers these
questions determined what kind of
economic system
Types of Economic Systems
• 1. Traditional Economy = decisions about
what to produce , how and for whom are
based on traditional customs and beliefs.
• People hunt, fish etc as their ancestors did
• Usually poor
• 2. Command Economy = decisions about
what to produces, how and for whom are
decided by government
• Also called controlled government
• The people have nothing to say about it
• Communist countries
• 3. Market Economy= decisions are made
by individuals acting in their own self
interest
• Capitalist system
• 4. Mixed Economy= combination of
command and market {most countries are
this type of system}
The U.S. Economic System
• The economic goals of US are…..
Growth
Efficiency
Stability
Justice
Security
• Charaterics
• Private Property
• Freedom of Choice
• Free Enterprise
• Limited government control
5.2 Producers and Consumers
• The Profit Motive= earnings after all costs of
production have been paid
• Factors of Production= types of resources
needed to produce goods and services
Land
Labor
Capital
Entrepreneurship
Technology
• Productivity= a measure of the efficiency
with which goods and services can be
produced
• Can be increased through technology and
specialization {focus on a certain thing}
Business Organizations
• Sole Proprietorship= owned and controlled
by 1 person
• Partnership= owned by 2 or more people
• Corporation= organization that is owned
by people who have shares of stock
known as shareholders
• Discuss Pros and Cons of each
Prices in a Free Market
• Demand= the quantity of a good or service that
consumers are WILLING and ABLE to buy at a
given price
• Law of Demand= when price goes down,
demand goes up, etc. etc.
• Supply= quantity of a good or service that
producers are WILLING and ABLE to sell at a
certain price
• Law of Supply= when price goes up, supply
goes up
• Interaction of demand and supply – pg 136-137
• Production Costs
Affects price of product – read page 137
• Competition = rivalry between 2 or more
businesses that offer similar goods or
services
Businesses want to lower prices to get
business but also want to make a profit
Consumers in the Marketplace
• Consumer sovereignty= controlling the
influence of consumers
• Boycott= organized refusal to purchase
certain goods or services
5.3 The Government’s Roles
• Levels of Government
Federal, State, Local
• Provide Public Goods
National defense, police, fire, education,
public transportation, parks, highways
Redistributing income
• Social Security= an insurance program
that is sponsored by federal government
Paid for by tax on earners wages
Based on previous earnings
Retirement, survivor’s, disability
• Unemployment Insurance
• Public Assistance Programs (pg 142-143)
Temporary Assistance to Needy Families
( TANF)
Supplemental Security Income (SSI)
Food Stamps
WIC
Free or Reduced school lunches
Medicaid
State Children Health Insurance
Housing Programs
Regulating Economic Activity
• Protecting the environment
• Protecting Consumers
• Protecting Workers
• Promoting Competition
Monopoly= a single company controls the supply
of goods or services
Antitrust laws= regulate unfair business practices
that reduce competition
Ensuring Economic Stability
• Fiscal policy= adjusting its policies about
taxing and spending
• Monetary policy= regulating interest rates
and money supply
5.4 Principles of Taxation
• Purpose of Taxation
Tax= required payment to the government
To fund public goods and services
To influence behavior
To stabilize economy
To redistribute income
Taxes people pay
• Income tax= tax on money you earn
• Social Security Tax= pay for SS program
• Sales Tax= what consumers pay on good
and services bought
• Excise tax- on manufacture or sale of
certain goods and services
• Property tax- tax on the value of your
property
• Estate and Gift tax
• Business or license tax
• Custom duties and tariffs
• See 5-16 on page 149
• Read Taxes and Fairness as class on pg
149-150
Relationship of Taxes
• Proportional Tax= same % out of
everyone's income
• Progressive Tax= larger % of income of
high-income people than low income
people
• Regressive tax = takes a larger % of the
income of low income people than that of
high income people