Adam Smith • He made the book A Wealth of Nations • HE believed is Laissez-Faire(Free Enterprise) Profit Competition Economics and the Industrial Revolution Karl Marx • Communist Manifesto • Help the worker
Money Invested • Stock market invented • “investors” would receive a percentage of profits • New York came stock market center • Wall Street • Insider Training
Supply and Demand The SUPPLY is the number of shares offered for sale at anyone one moment. The DEMAND is the number of shares investors wish to buy at exactly that same time. -These factors are very important in determining the price of stocks. If someone is willing to pay more for one stock, stocks will therefore cost more, and vice versa. (Refer to chart of supply, demand and price)
The Company’s Financial Health How do investors decide whether a stock is worth its given price? They must examine a company’s financial situations. Why would someone put a ton of money into a company that is practically bankrupt? GET IT??? Most people look to invest in companies with history of making a profit.
An Industry’s Financial Health What’s Next? CHANGE!!! A company may be doing well, but an industry likeliness to change can help or hurt many companies. Example: Video cassette companies. - Ex.: Some video cassette player making companies may have been doing well, but the industry value declined with the advancement in technology (CD’s). Which led to their demise.
Economic Trends INFLATION AND DEFLATION INTEREST RATES RATE OF ECONOMIC GROWTH MEASURED BY GNP NATIONAL BUDGET UNEMPLOYMENT RATES ALL OF THESE INDICATORS SHOW CHANGES IN HOW ORDINARY PEOPLE WILL SPEND THEIR MONEY, AND HOW WILL THE ECONOMY IS LIKELY TO PERFORM.
World and National Events Nothing may change one’s attitude towards how to spend there money more than major news. Wars, Natural Disasters, Politics. Almost any major event can make stock prices fluctuate. Would you invest money into oil companies if middle eastern countries are at war with each other.
Important Terms You need to know it
F.D.I.C (Federal depository) a public corporation, established in 1933, that insures, up to a specified amount, all demand deposits of member banks.
We want you to put your money in the bank. ( or there will be no money to lend)
S.E.C (Security and exchange) Securities and Exchange Commission: a board, consisting of five members, charged with regulating the public offer and sale of securities.
Insider Trading the illegal buying and selling of securities by persons acting on privileged information.
White Collar Crime any of various crimes, as embezzlement, fraud, or stealing office equipment, committed by business or professional people while working at their occupations
Federal Reserve Bank a U.S. federal banking system that is under the control of a central board of governors (Federal Reserve Board) with a central bank (Federal Reserve Bank) in each of 12 districts and that has wide powers in controlling credit and the flow of money as well as in performing other functions, as regulating and supervising its member banks.
Mutual Funds an investment company that issues shares continuously and is obligated to repurchase them from shareholders on demand.
Inflation Economics . a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency ( opposed to deflation).
Unemployment not employed; without a job; out of work: an unemployed secretary
Gross National Product ( Gross Domestic Product the total monetary value of all final goods and services produced in a country during one year.
Consumer Price Index an index of the changes in the cost of goods and services to a typical consumer, based on the costs of the same goods and services at a base period.
Corporation SAY WHAT? A corporation is a formal business association with a publicly registered charter recognizing it as a separate legal entity having its own privileges, and liabilities distinct from those of its member. A publicly owned company through stocks.
Stockholders He could be part owner of Giant Eagle A shareholder is an individual person or institution that legally owns one or more shares of stock in a corporation. IT’S SOMEONE WHO OWNS STOCKS
Shares In financial markets a share is a unit of account for various financial instruments including stocks, and investments in limited partnerships, and real estate investment trusts. ITS LIKE A CENTIMETER IN MATH EXCEPT ITS FOR FINANCIAL UNITS
Business cycle This may seem confusing. Mr. Vanreeth will explain. • The term business cycle (or economic cycle) refers to economy-wide fluctuations in production or economic activity over several months or years. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (expansion or boom), and periods of relative stagnation or decline (contraction or recession).
What is Economics? Economics is the study of how societies use scarce resources (land, labor and capital) to produce valuable goods and distribute them among different people
What questions must every economy answer? What should be produced? How many should be produced? What methods should be used? How should the goods be distributed?
What were the different economic philosophies? Mercantilism Capitalism Communism Socialism
What is Mercantilism? An economic policy used before the Industrial Revolution, created to develop the wealth of a nation by strict government regulation of the entire national economy.
What were the characteristics of Mercantilism? accumulation of bullion (gold, silver) a favorable balance of trade – Exports > Imports Development and protection of industry through use of protective tariffs Establishment of colonies to build wealth and markets
How did economic policies change during the Industrial Revolution? Most nations began to follow the policy of Laissez-Faire Capitalism introduced by Adam Smith
Who was Adam Smith? • Lived in Scotland over 200 years ago • Chairman of Philosophy at University of Glasgow • Studied economics and political philosophy • Wrote a book called “Wealth of Nations” • Attacked the policy of mercantilism
What were Smith’s Ideas? • Laissez-faire • Free Markets • Free Enterprise • Individualism (Self-Interest)
What is Laissez Faire? • No government intervention in the economy – “Hands-Off” • No taxes, No laws that would impact business,
What are free markets? • Supply and demand determine what and how much to produce • Competition regulates the price of goods
What is free enterprise? • The freedom of private business to operate completely for profit with no intervention by the government
How will society benefit? • Individualism • When each person does what is best for him or her everyone benefits
What is Laissez-Faire Capitalism? • Economic system characterized by the following: • Free Enterprise - Private ownership of property (businesses) • Laissez Faire - No government intervention • Individuals and businesses compete for their own economic gain (profits) • Supply and demand determine the prices of goods and services
What were the results of Laissez-faire economics? • Economic Growth • Large gap between the rich and poor • Extreme Poverty • Child labor • City Slums • Educational Neglect • Unsafe and unsanitary working conditions
Who challenged the ideas of Adam Smith? • Karl Marx • Born 1818 in Germany • Studied philosophy and economics in Berlin • Newspaper journalist until govt. expelled him • Communist Manifesto, 1848
According to Marx, what caused society to change? 1. Economics is the major force of change in society • Conflict between the “haves and have-nots” – Social Classes Examples: French Revolution – 3rd Estate vs. 1st and 2nd Estate Medieval Serfs vs. Nobles
Who were the “Haves and Have-nots during the IR? • Haves: • Capitalists – factory and business owners (bourgeoisie) • Power – control the govt. • Money - keep the profits • Have-nots • Workers (Proletariat) • Low wages, working conditions
What should the Working Class do? 2. REVOLUTION - Workers should unite and overthrow the capitalist middle class (bourgeoisie) • “Working men of all countries, unite!”
Who will own the factories and businesses? 3. NO PRIVATE OWNERSHIP - All means of production (factories and businesses) will be owned and controlled by society
Who will receive the profits? 4. EQUAL DISTRIBUTION OF WEALTH - Profits will be equally distributed among the people according to need “From each according to his ability to each according to his need”