1. Economics Part I
Why Free Market Is BETTER Than
The Rest

2. Focus:

3. Agenda:
Compare/Contrast economic
systems
Explain the importance of
competition and profit
Analyze types of business
Discuss Factors of Production

4. Economics or The study of the buying and
selling of goods/services and the relationship
between consumer, business, and government
in that process
Our System at Work
How people obtain GOODS and SERVICES is what
distinguishes different economic systems from each other.

5. • Traditional Economic System
Decisions based on how economic
activity has been done in the past
- Make and grow all they
need themselves
- Trade or barter for items
they can not produce
themselves
- Examples: Amish, Native
Americans

6. • Command Economy (N. Korea and
Cuba)
The government makes all
economic decisions
- Gov’t. owns/controls all tools,
money, and equipment
- Gov’t manages what, when,
where, and how much is
produced

7. Market Economy
Decisions made by individuals with their
interests being themselves and their
families.
- It is a FREE MARKET or they can buy and sell as
they please
- Free Enterprise means individuals own all of the
tools, resources, and are exclusively responsible for
businesses’ success/failure.
This market is controlled by two main laws. Laws of
SUPPLY and laws of DEMAND

9. Mixed Economy – an economy that mixes elements of
different economic systems
- US has essentially a market economy but there are very small
elements of a command economy = CAPITALISM OR MIXED
ECONOMY is closely linked to market economy – Productive
resources are owned by private citizens but it is not completely
free.
How so? …
Gov. regulation protects consumers, environment, and
workers
FDA – how restaurants prepare/serve food or EPA – How
companies get rid of byproducts and affect the air quality
Limited price control – You can’t sell MILK, CIGARETTES ,
etc. for less than X # of dollars = FIRST IS TO PROTECT MILK
FARMERS AND SECOND IS TO PROTECT HEALTH OF PEOPLE

10. Supply and Demand
- Law of Supply
Business will produce more
of a product when they can
sell them at higher price
- Law of Demand
Buyers will demand/buy or
want more when price is
lower

11. Supply =
Demand=
EQUALIBRIUM
= PRICE and
PRODUCTION
TO ELIMINATE
SURPLUS AND
SHORTAGE
QUANTITY
PRICE

13. Households
Businesses
Government
Adam Smith and Circular Flow Model
In a free-enterprise economy there is an interaction
between _BUSINESSES___, _ CONSUMERS____,
government, financial institutions, and charities -
They can’t abuse their power because they rely on
each other to exist

14. KEYS to Capitalism - Profit and Competition
Companies want to maximize profit or __ increase money
made after expenses______ (This is essential to free
market/free enterprise)
To make a profit companies provides goods or services.
To do this, a company must have adequate factors of
production (natural resources, capitol, labor).
Resources are limited so companies must compete for both
resources and CUSTOMERS_
___Scarcity_____________ or a lack of something (resources or
goods/services) impacts the PRICE
d. Competition , is one of the most basic and vital concepts of Free
Market/Capitalism
i. keeps prices lower
ii. keeps companies trying to improve products
iii. attracts innovators

15. **** PATENT – exclusive right to make and sell a product
****COPYRIGHT – exclusive right to publish
or sell art
_Monopoly or when one company controls the
market (only one selling/providing service) are
frowned upon because of the need for competition
in a free market.
Success Story – Mark Zuckerburg of
_FACEBOOK_____________________ was a college student
who thought students on different campuses should have
better way of communicating.
Make money off of advertising -

16. Types of Businesses
When businesses start up, the first thing that must be decided is
how will it be owned?
Sole Proprietorship – Business owned by one person
Advantages - You’re your own _BOSS_,
take in all ___PROFIT__
Disadvantages – Lose personal wealth if
business fails, must pay for help
***Can you get some __VENTURE_
capital? Individuals will invest in your
company without actually owning a part.
If business becomes successful then they
may get part of company or $ with
interest.

17. Partnership – Two or more people share
responsibilities, costs, etc of business
Advantages – _WORK, IDEAS,
MONEY__ comes from more
that one, more workers, share
ideas
Disadvantages – Lose personal
wealth if business
fails,__DISAGREEMENTS_____
______ with partners

18. Corporations – a business recognized as a separate legal
entity
NOTE: Privately owned = _SHEETZ__, Publicly traded = _APPLE_
Raise $$$ by selling ___STOCK __ or shares
of the company OR sell bonds
Pays out __DIVIDENEDS_______ or % of
profit proportionate to # of shares owned
– Doesn’t have to occur if company not
profiting
States grant corporations the right to
operate but must follow laws.
Board of directors elected by the
stockholders and board chooses a
President and VP of company

19. Oil
Coal
Iron Ore
Steel Mill
1. Natural Resources – i.e. Does your location
enable you to ship your products or deliver
your service (Tractor Trailer, Train,
Automotive, Car, etc.) or are the resources
READILY AVAILABLE
Making Business decisions
- Factors of Production

20. - Capital - $$$ there are many start up costs and then
monthly costs that require sometimes large sources
of money – Family, Banks, Gov. Grants,
Stockholders
* Marginal Analysis - The cost associated with
one additional unit of production
EX. My business is selling sandwiches. Should I
stay open two hours later every day just to sell on
average 5 more sandwiches a night at $4.00 a
sandwich while employing 2 workers @ $8.00/hr?
(Cost vs. Benefit)

21. - Customer Base – Newly defined because of
global economy – EBAY
- Labor - Who will work for your company
Too many workers = waste
Too few workers = unhappy customers
and unhappy overworked employees
- State of the economy – See below

22. •Production
I.Goods are things MADE or MANUFACTURED while
services are non physical things consumers ARE PROVIDED
OR DONE FOR THEM.
A.Examples of services include: Personal Services –
yoga instructor, repair service – mechanical, or other like
retail, legal, etc.
B.All services vary in degree of training and level of skill
needed.
II.GDP or GROSS DOMESTIC PRODUCT the market value
of all goods and services produced annually is called Gross
Domestic Product

23. History of Mass Production
- Early 1800’s MP occurred by fast flowing rivers and
the first industrial revolution was caused by STEAM
ENGINE
- The 2nd Industrial Revolution occurred in the late
1800’s with help from the internal combustible
ENGINE and INTERCHANGEABLE PARTS.
- Greatest impact ever was Henry Ford’s
PERFECTION OF ASSEMBLY LINE. Workers are
stationary and parts move to the employee. You
complete a specific task over and over again but
you can be mostly unskilled.

24. Assessing the economy
- Historically the economy has a natural business cycle –
Peak/PROSPERITY, Decline/RECESSION, DEPRESSION,
Expansion/RECOVERY
- Economic Indicators
A.Leading Indicators – make PREDICTIONS about what is
to come
1.Building permits, Loan Applications, Interest Rates
B.Coincident Indicators – presently how is economy doing
1.Rate of income for individuals, stock market value,
value of dollar
C.Lagging indicators – signs that follow changes to
business cycle – Examples. CPI, GDP
1.New businesses were started, unemployment rates
(usually takes 2 or 3 months to show up in
unemployment records)