Chapter 18.3Chapter 18.3

Being an Economically Smart Being an Economically Smart CitizenCitizen

Understanding Your Role in Understanding Your Role in the Economythe Economy

• The U.S. has a The U.S. has a market economymarket economy. Most . Most economic decisions are not made by the economic decisions are not made by the government, but by individuals looking government, but by individuals looking out for their own and their families self-out for their own and their families self-interests.interests.

• A market economy is participatory. The A market economy is participatory. The choices you make as a consumer affect choices you make as a consumer affect the products that businesses make and the products that businesses make and the prices they receive for their products. the prices they receive for their products. Likewise, the products offered and their Likewise, the products offered and their prices affect the choices you make.prices affect the choices you make.

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• A market economy is based on A market economy is based on capitalismcapitalism, a system in which citizens , a system in which citizens own most of the means of production. It own most of the means of production. It is also based on is also based on free enterprisefree enterprise – – businesses compete for profit with a businesses compete for profit with a minimum of government interference.minimum of government interference.

• Keeping informed means reading news Keeping informed means reading news stories, listening to news reports, and stories, listening to news reports, and gathering information about economic gathering information about economic activities of businesses and government.activities of businesses and government.

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• IncentivesIncentives are rewards offered to try to are rewards offered to try to persuade people to take certain economic persuade people to take certain economic actions. Price is one incentive. Others are actions. Price is one incentive. Others are bonuses for salespeople and low credit rates bonuses for salespeople and low credit rates for consumers. Knowing how incentives work for consumers. Knowing how incentives work will help you make wise choices.will help you make wise choices.

• One role of gov’t in the economy is to help One role of gov’t in the economy is to help maintain competitive markets. Another role maintain competitive markets. Another role is to provide services, such as education and is to provide services, such as education and national defense, that the private sector does national defense, that the private sector does not provide.not provide.

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• Competition forces businesses to use society’s Competition forces businesses to use society’s resources efficiently to produce goods and resources efficiently to produce goods and services people prefer to produce quality services people prefer to produce quality products at low costs. Low production costs products at low costs. Low production costs keep prices low for consumers.keep prices low for consumers.

• Gov’t can use incentives to encourage people Gov’t can use incentives to encourage people and businesses to take certain actions. For and businesses to take certain actions. For example, offering scholarships encourages example, offering scholarships encourages more people to get higher education.more people to get higher education.

• Gov’t can also discourage certain actions. For Gov’t can also discourage certain actions. For example, tax laws can punish companies that example, tax laws can punish companies that cause pollution.cause pollution.

Making Wise ChoicesMaking Wise Choices

• Rational choiceRational choice is choosing the is choosing the alternative that has the greatest alternative that has the greatest value from among comparable-value from among comparable-quality products. You make a quality products. You make a rational choice when you buy the rational choice when you buy the goods and services that you believe goods and services that you believe will best satisfy your wants for the will best satisfy your wants for the lowest possible cause.lowest possible cause.

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• Wise consumers will not all make the Wise consumers will not all make the same choices. A rational choice is one same choices. A rational choice is one that generates the greatest that generates the greatest perceivedperceived value for any given expenditure.value for any given expenditure.

• Wise decision making by individuals Wise decision making by individuals also benefits society by making the also benefits society by making the best use of scarce resources.best use of scarce resources.

• Being fully informed is the best way to Being fully informed is the best way to make the best economic as well as make the best economic as well as political decisions.political decisions.