Post on 27-Dec-2015
THE ECONOMY & POLITICSChapter 13
THE ECONOMIC INSTITUTION
Every society has certain wants and needs that must be met if their happiness and well being are to be assured
NEEDS: food, clothing, housing, safe environment are basic to survival
WANTS: new car, cell phones, fashion are not necessary for survival but add to the quality of life
All societies develop a system of roles and norms that govern the production, distribution, and consumption of goods and services…this system is called THE ECONOMIC INSTITUTION
FACTORS OF PRODUCTION
Resources needed to produce goods and services Land-soil, water, plants, sunlight Labor- human resources Capital- all the manufactured goods used in the
production process Entrepreneurship- organizational skills and risk taking
attitude
Technology is the use of science to produce new products or make process more efficient, a society’s ability to exploit the factors of production shapes their economic system
ECONOMIC SYSTEMS
All systems have 3 basic sectors Primary sector- extraction of raw
materials from the environment, fishing, hunting, mining, farming
Secondary sector-use of raw materials to manufacture goods
Tertiary sector- the provision of services
PREINDUSTRIAL ECONOMIC SYSTEMS Little technological development All economic activity is carried out using
human labor and animal power Labor concentrated in the primary sector Emphasis on providing food
INDUSTRIAL ECONOMIC SYSTEMS
Emphasis shifts to the secondary sector, made possible by advances in technology-machines and new sources of energy.
Agricultural production rises, allows for greater population who shift to urban living and manufacturing
Change nature of work, workers become specialized
ECONOMIC MODELS
Who owns the factors of production and how is economic activity regulated?
Most economies as mixed, no society is pure France, Sweden, Great Britain middle of spectrum with
government controlling certain essential services and industries such as health care, energy production, or production of certain goods
United States capitalist, but… China socialist, but…
CAPITALISM Factors of production are owned by individuals rather
than the government Profit and competition regulate economic activity Consumer purchases determine supply and demand Adam Smith, “invisible hand”, the forces that determine
economic choices Law of Supply: producers will supply more products when
they can charge higher prices and fewer at lower prices Law of Demand: consumers will demand more of a
product as the price of the product decreases Laissez-faire – let the people do as they choose, free-
enterprise system
SOCIALISM Factors of production are owned by government Government regulates economic activity What to produce is determined by social need, not by
consumer demand, regardless if it can be produced profitably
Central planners determine how to produce goods, what goods in what quantities
For whom to produce is determined by need rather than the ability to pay
Ultimate form communism a social political system in which all property is communally owned, Karl Marx, ideal never achieved in practice, instead totalitarian governments have imposed
AMERICAN ECONOMY Rise of corporate capitalism Corporation- a business organization that is owned by
stockholders and is treated by the law as if it were an individual person, can enter into contracts, issue stocks, and buy and sell goods
Only 20% of businesses, but 88% of business sales Oligopoly-a few large companies control an industry- US
oil, auto, breakfast cereals, control prices, stop new entrants into a market, exert pressure in the political arena
Protectionism- use of trade barriers to protect domestic manufacturers from foreign competition, quotas, surcharges, taxes
Globalization Larger corporations located in several nations,
multinational corporation Office in one nation, subsidiaries in others Can manufacture in one nation (factories in Mexico) from
materials from several others, finished product sold in countries worldwide
Walmart bigger economy than 160 countries Affect international affairs
Changing nature of work Shift from an industrial base to a service base Automation and efficiency have reduced the number of
workers needed for manufacturing Competition from newly industrialized countries, out-
sourcing Downsizing-cutting costs by reducing size of workforce Technological requirements not being met by educational
system
E-commerce Business conducted over the internet Not based on traditional factors of production but instead
based on information New way of doing business, resupplying and billing
automatically linked, package goods and services to meet individual requirements
Fears of loss of privacy Cyber Monday