Warm Up

1. What principles may exist in economics?

2. What economic goals exist in the U.S.?

Economic Principles

• Freedom of enterprise• Private property• Profit motive• Consumer Sovereignty• Competition

Consumer Sovereignty

• Consumer freedom– Consumers are free to choose what goods and

services they will buy• Economics describe the need to give

consumers what they want as consumer sovereignty

Competition

• Rivalry among sellers for consumer dollars• Competition pressures businesses to

constantly try to provide the best services and to create the best products at the lowest possible price

Specialization

• Promotes innovation (new ways of doing things)

• Concentrate on being productive and efficient• Increase production, improve quality, and

lower costs• Only possible where markets are large enough

to support them

Role of Price

• Prices affect WHAT goods and services will be produced

• Prices affect HOW goods and services are produced

• Prices affect WHO will receive goods and services

Circular Flow

• People receive income from a number of sources and spend it in a variety of ways– Workers receive wages and buy consumer goods– Business owners receive profits and pay their

employees and suppliers– Landlords receive rent and purchase new items for

their buildings• Economics describe the stream of funds that

constantly pass back and forth as circular flow

Circular Flow cont.

• No matter how money is earned, it returns to the economy when buyers purchase the things they want/need

• Circular flow between– Business and public– Goods and services

• One carries money from the public to business and back again. The other carries goods and services between the same parties

GDP

• Gross domestic product• The total value of the goods and services

produced in a single year• C+I+G=GDP– C=Consumer – I=investment (business spending)– G=Government spending

• Goods and services can be purchased by either consumers, businesses, or government

Advantage of Market Systems

• The most efficient of all economic systems• Is more sensitive to consumer demand than

other economic systems• Provides the most freedom for individuals and

business firms, and least direction and control by the government

• Rewards those with the value the economy places on their contribution

Disadvantages of Market Systems

• Does not provide all the goods and services needed by society (public)

• Does not adequately provide for the need of all the people

• Is likely to experience periods of expansion and contraction of business activity

• Cannot account for the harmful costs of doing business

Economic Goals

• Economic freedom• Economic justice• Economic stability• Economic efficiency• Economic security• Economic growth

Economic Challenges

• Unemployment• Wealth gaps• Other: pollution, economic instability

Activity

• Poster– Economic goals