CIVICS IN PRACTICE
HOLT
Chapter 17
The Economic System
Section 1: The Economic System at Work
Section 2: Business Organization
Section 3: Making Business Decisions
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 1: The Economic System at Work
The Main Idea
Countries form many types of economic systems to
meet their citizens’ needs and wants. The Untied
States has a market economy.
Reading Focus
 How do different economic systems help satisfy
people’s needs?
 What factors shape life in a market economy?
 What is the U.S.S economic system like?
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 1: The Economic System at Work
Economic Freedoms in the U.S.
Market Economy
 Freedom to buy and sell—government role is
limited
 Freedom to compete—producers make what
they think the consumer will buy
 Freedom to earn a living—citizens free to
seek the best jobs they can get
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 1: The Economic System at Work
Economic Freedoms in the U.S.
Market Economy (continued)
 Freedom to earn a profit—the profit motive is
essential to the system
 Freedom to own property—private ownership
makes the free market possible
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 1: The Economic System at Work
The laws of supply and demand state:
 The balance of supply and demand determines
the prices and quantities of goods and services.
 Law of supply—businesses will provide more
products when they can sell them at higher prices
 Law of demand—buyers will demand more
products when they can buy them at lower prices
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 1: The Economic System at Work
The free enterprise system and big businesses:
 Free enterprise system—freedom to compete
without government interference allows the
opportunity to enjoy success and profit
 Businesses run risks and must accept losses.
 Monopolies harm a free economy by eliminating
competition.
 Some goods are produced more efficiently by big
businesses due to economies of scale.
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
SECTION 1
HOLT
Question: In what ways can big business help
and hurt the free-enterprise system?
The Free-Enterprise
System
Helps the
System
 employs many
people
 produces goods
more efficiently
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Big
Business
Harms the
System
 monopolies
 mergers
 trusts
 unfair competition
HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 2: Business Organizations
The Main Idea
American businesses may be organized as sole
proprietorships, partnerships, corporations, or
nonprofit organizations.
Reading Focus
 What are the different types of business
organizations?
 How do corporations function?
 What is a nonprofit organization?
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 2: Business Organizations
Different types of business organizations:
 Sole proprietorships—small businesses owned by one
person; owners keep all profits but supply capital,
hire help, and pay taxes; solely responsible for losses
 Partnerships—two or more people share
responsibilities, costs, profits, and losses; often more
successful than sole proprietorships
 Corporations—permanent organizations; most
common form for large companies
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 2: Business Organizations
Features of a Corporation
 Raise money by selling stocks
 Shareholders receive a portion of the profits in relation
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to their holdings.
States issue charters of incorporation, and corporation
obeys regulations.
Stockholders elect directors and vote on changes.
Board of directors selects corporate officers.
No one is responsible for a corporation’s debt if it fails.
HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 2: Business Organizations
Differences between preferred stock
and common stock:
 Preferred stock—less risky; dividends guaranteed if
company is profitable; stockholders do not usually
vote in company’s affairs
 Common stock—more risky; dividends only when
company is very profitable; benefits include
possibility of higher dividends, increased stock
value, and voting on company’s affairs
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
SECTION 2
HOLT
Question: What are the five most important
features of a corporation?
The Most Important Features of a
Corporation
raising
money
securing the rights to
operate
electing directors
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meeting debt
responsibilities
choosing
executives
HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 3: Making Business Decisions
The Main Idea
Business owners must make decisions about their use of
natural resources, capital, labor, and
entrepreneurship. Business owners are free to make
these decisions with little interference from the
government.
Reading Focus
 What are the four factors of production?
 What is the government's role in the economy?
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 3: Making Business Decisions
The four factors of production:
 Natural resources
 Capital
 Labor
 Entrepreneurship
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 3: Making Business Decisions
The four factors of productions are
necessary to the success of business:
 Natural resources—provide physical space and
raw materials for business
 Capital—the money needed to start a business
 Labor—the human effort required for the
business
 Entrepreneurship—initiative, decisions, risks,
and management involved in a business
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HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Section 3: Making Business Decisions
How government regulates business:
 Protects small businesses from big
corporations (monopolies)
 Protects workers’ health and safety
 Prevents pollution
 Protects consumers from harmful products
and practices
 Ensures equal opportunity employment
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HOLT, RINEHART
AND
WINSTON
SECTION 3
CIVICS IN PRACTICE
HOLT
Question: What are the four factors of
production?
natural
resources
capital
Factors of
Production
labor
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entrepreneurship
HOLT, RINEHART
AND
WINSTON
CIVICS IN PRACTICE
HOLT
Chapter 17 Wrap-Up
1. How do the laws of supply and demand affect the prices of
products?
2. What is the free-enterprise system, and what roles do big
businesses play in it?
3. What are the major characteristics of corporations, and
what are their benefits?
4. What are the advantages and disadvantages of preferred
stock and common stock?
5. How are stocks and corporate bonds similar and different?
6. What role does the government play in the U.S. economy?
7. Why must the factors of production be considered when
starting a new business?
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HOLT, RINEHART
AND
WINSTON