The Principles of Our Market Economy

1. The Principles of Our Market Economy Chapter 14.1 By PresenterMedia.com

2. Circular Flow of Economic Activity

3. Circular Flow Example: You want a new stereo system in your car, so you go to Best Buy and buy one. You exchange your money for a good that you want. You also happen to work for the Geek Squad at Best Buy. You exchange your labor for an hourly wage. These two exchanges are connected because you buy a stereo with the money you earn from working. Creates a “FLOW”

4. In real life… People exchange labor for wages and purchase from many businesses American economy is based on this flow All American businesses together: PRODUCERS Turn to page 378, look at the diagram, & answer the following: • What are the 3 factors of production? • What is interest?

5. Supply and Demand What is a market? “The Market” determines: • How much of something will be produced (Is there a want or need for the item?) • The prices of the items produced (How much are people willing to pay for the item?) Competition = market operates according the “laws” of supply and demand

6. Law of Demand Demand: The amount of a product or service that buyers are willing and able to buy at different prices. Example: • Many people are buying the Iphone 5S • People are demanding many of the Iphone 5S • When deciding to buy something, you balance the cost to you with the benefit you will receive from it (the lower the price the more likely you will buy the item) • At a low price, more people will decide to buy the Iphone 5S (high demand) • At a high price, fewer people will buy the Iphone 5S (low demand)

7. Law of Supply Supply: the amount of a product that producers are willing and able to offer at different prices. Producers also balance the cost with the benefit • Cost: how much $ to produce the item • Benefit: how much a buyer will spend on the item Example: • When the price of the Iphone 5S is high, more producers will want to produce the Iphone 5S because they will get more $ • When the price of the Iphone 5S is low, fewer producers will want to produce the Iphone 5S because they will get less $

8. Supply AND Demand You must combine these two laws to understand the market. CANNOT HAVE ONE (S or D) W/O THE OTHER Affect each other oppositely: • At higher prices, more product is made but less is demanded • At lower prices, less will be supplied, but more is demanded

9. Market Price The price at which buyers and sellers agree to trade If you place supply and demand curves on a graph, the market price is the point at which the two lines meet.

10. Page: 380 How will a decrease in price affect the supply of strawberries? AT $2.00 a basket, how many baskets of strawberries could be sold, and why?

11. Supply and Demand for iPhones at a Local AT&T Store 1.) At approximately what market price does it shows a balance in the quantity of iPhones supplied and the quantity of demand being demanded? Please indicate the number of iPhones being supplied to meet the demands. 2.) It is the holidays, the market price for an iPod has shifted from $300 to $400, please explain the price change effect on the supply and the effect on the demand. 3.) Why do you think that the price change from $300 to $400 affected the supply and demand? In other words, what are the reasons behind it? 500 450 400 350 300 Price per iPhone ($) 250 200 150 100 0 0 600 800 1000 400 Number of iPhones Demanded and supplied

12. Supply and Demand Worksheet Complete the Supply and Demand Worksheet individually. Go over answers as a class.

13. The Role of Business in the American Economy Chapter 14.2

14. Other Influences Demand can be influenced by more than just price • Example: Basic products like gas or milk • Why? • Example: Advertising, style of fashion, the way we as consumers view the product • Why?

15. Entrepreneur: A person who starts a business A business: an organization that combines land, labor, and capital to produce goods or services When starting a businessmust decide how their business is going to be owned. Three basic types of business ownership in the USA: • Sole Proprietorship • Partnership • Corporation

16. Sole Proprietorship Owned by one individual Most common form70% Advantages: • Freedom to run business the way they want • Profits go to just owner Disadvantages: • Responsibility for all decisions and finances

17. Partnership Two or more people share ownership In USA: law firms, medical groups, etc. Advantages and disadvantages are the same as sole owner except: • More than one person shares the risks and rewards • Possibility of differences arise, which could ruin a business

18. Corporation Separate from the people who own it and legally as a single person More than one person owns it • shares in a corporation = stocks • people who own stocks = stockholders Advantages: • Lots of $ by selling stocks • Stockholders not responsible for corp’s debts • If corp fails, only lose the value of your stock Disadvantages: • Limited by gov’t regulations • More difficult and expensive to start

19. The Rise of Big Business Corporations dominate our economy90% of total sales in the USA Why? • Can produce goods and services more efficiently • Can afford technology and machinery to produce faster • Resources to develop new products and production methods