Chapter 14: Basics of our economic system

1. Social Science Chapter 14: Basics of our economic system

2. Circular Flow • We are all part of the circular flow of economic activity by buying items with money that you acquire from working • Businesses continue the circular flow through using the money received from profits and paying for resources and land • Businesses pay rent when using land, interest when using capital, and wages when using labor

4. Supply and Demand • Markets determine how much of a good will be produced and the prices of the goods, and these choices are determined by the laws of supply and demand • The law of demand is the amount of a product or service that buyers are willing and able to buy at different prices • When deciding whether to buy the item, you balance its cost with the benefit you will receive from it • Can be influenced by price, advertising, styles of fashion, and the way perceive a certain product • The law of supply is the amount of a product that producers are willing and able to offer at different prices • When the a price is high, more producers are willing to supply more of it, and vice versa

6. Market Price • The laws of supply and demand help determine the price of a product and the quantity offered • At higher prices, more of a product will be supplied, but less will be demanded, and the opposite happens with lower prices • The ideal situation is to make the quantity supplied and the quantity demanded equal • The way to make them equal is through market price, or the price at which buyers and sellers agree to trade

7. The Entrepreneur • An entrepreneur is a person who starts a business • Entrepreneurs come up with an idea for a new product, of producing something, or a better way for providing service • Entrepreneurs raises money for capital in order to start their business • Entrepreneurs either provide their own labor, land, and capital or obtain it from other sources • Being an entrepreneur can be risky, since there is a chance they could lose everything if the business fails, but if they succeed, they will make a profit

8. How Businesses are Owned • There are three styles an entrepreneur can own his business through: • Sole Proprietorship: when a business is owned by an individual • Owner has freedom to run their business how they want to and profits belong to them alone, but they also bear the sole responsibility of the business, which can become harder as time goes on • Partnership: when a business is shared by two or more people • the benefits and risks of a partnership are the same as a sole proprietorship, but it involves more people • Corporation: when a business acts separately from the people who own it and legally acts as one person • People can buy ownership, or stock, in the corporation, becoming stockholders, and the cost of the stock raises money for the corporation • Corporations can raise lots of money through its stocks and the stockholders are not responsible for the corporation’s debts, but corporations are more difficult to control

9. The Rise of Big Business • In the beginning, most businesses are sole proprietorships, and most families were self-sufficient • When new inventions and factories started sprouting up, the prices of goods fell, and people began moving to cities to obtain these goods and work in these factories • By the beginning of the 20th century, large corporations dominated many resources • Major reason was that they could produce and sell products more efficiently and are able to do research on their products

10. Wage Labor • Before big business, many in the United States were either farmers or skilled craftspeople • Because of the rise of new machinery and industrialization, many craftspeople turned to working at factories for wage labor to make money • Many businessmen took advantage of those who worked in factories because they knew workers had to accept whatever they were given • Workers were subjected to poor and dangerous working conditions, along with long hours and poor wages

11. Rise of Labor Unions • Workers realized that the only way they could get fair treatment is to organize against their employers • Workers began to form labor unions, or organizations of workers that seek to improve wages and working conditions and to protect members’ rights • Many small labor and trade unions sprouted up in the 1880’s, along with two major unions, the Knights of Labor and the American Federation of Labor • Goal of large unions was to have employers to participate in collective bargaining, or a process in which representatives of the unions and business try to reach agreement about wages and working conditions

12. Weapons from Unions and Businesses • Unions used various weapons and strategies against big businesses • Slow-downs: workers would work slower • Sit-downs: workers would sit at work • Boycott: refuse to buy employer’s products • Strike: workers refuse to work • Business also had some strategies up their sleeves • Strikebreakers: people hired to come in and work for those who were on strike • Private police: broke up striker gatherings • State police and militias • Blacklist: employees were put on a list to prevent other businesses from hiring them • Businesses and unions made major agreements by 1920, reducing daily work hours to 8 and making the workplace safer

13. Labor Unions since 1930 • Congress passed the Wagner Act in 1935, recognizing labor unions and encouraging them to strike if demands are not met • Other acts, such as the Taft-Harley Act, put limits on union power • The rise of industrial unions caused new unions, such as the Committee of Industrial Organization, to form • The Committee of Industrial Organization and the American Federation of Labor formed the largest union, the AFL-CIO, in 1955 • Labor unions were a major force in helping Congress pass bills on social security, wage increases, and unemployment insurance

14. Labor Unions Today • The composition of the labor force has changed since the beginning of the 20th century • Many people are working in service industries rather than labor • The decline of manufacturing industries also a cause of a lesser need for labor unions • Has caused many problems, especially for employees who are out of a job because of a plant closing or lay-offs