Economic Systems and Economic Systems and InstitutionsInstitutions

KCCT Coach Chapter 9

Size of Economic Systems

• ECONOMY refers to the structure of the management of resources

• Generally, when you hear people speak of “the economy”, they are referring to the NATIONAL ECONOMY

• ECONOMIC SYSTEMS can be large or small—for a country or just one person

Size of Economic Systems

• Any entity that has and uses resources has an economy

• this includes Countries, States, Cities, Households, Businesses, and individuals

• a BUDGET is a plan for the management of the resources for an economy

• you can BUDGET money, time, people, water, oil, etc. (any resource)

Please select a Team.

Toxic waste

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Globe tr

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Awesome A

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Pretty Purp

le ...

Rocksta

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Golden Cobras

17% 17% 17%17%17%17%1. Toxic wasters

2. Globe trotters

3. Awesome As

4. Pretty Purple Princesses

5. Rockstar M&Ms

6. Golden CobrasResponse GridResponse Grid

Which economy is largest?

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individual city state national

1. individual

2. city

3. state

4. national

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A budget is a type of:

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economy plan currency product

1. economy

2. plan

3. currency

4. product

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Financial Institutions

• a FINANCIAL INSTITUTION is an establishment dedicated to helping individuals and businesses to manage money

• the most common form of FINANCIAL INSTITUTION is a BANK

Custody of Funds

• BANKS offer a safe, secure place to keep your money

• Most people DEPOSIT (place in the custody) their paychecks in banks

• Keeping your money in the bank prevents robbery and also reduces the temptation to spend your money

Loaning Money

• One way banks make money is by issuing LOANS (they let people borrow money)

• Loans are amounts of money lent that are paid back with INTEREST (a charge for borrowing money)

Exchanging Currency

• Banks keep all DENOMINATIONS (sizes) of money on hand

• Denominations include bills and coins

• banks will exchange money for you

• banks will also exchange US currency for foreign currency

Issuing Money• banks also issue money—usually when

people cash checks

• a CHECK is a promise of money from one person/organization to another

• when a check is brought to a bank, the teller checks to see if the writer’s account can cover the amount

• checks eliminate the hassle of carrying large amounts of cash

Extending Credit

• CREDIT is an amount of money a person is allowed to spend, provided they pay it back in a timely manner

• Credit can be given in the form of a loan, on CREDIT CARDS, or on a “tab”

• CREDIT CARDS authorize the holder to spend a certain amount of money and repay it with INTEREST

A bank is one type of financial institution. Which of the following is another type of

financial institution?

0%

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0% 1. grocery store

2. department of public utilities

3. investment company

4. realty agencyResponse GridResponse Grid

Which of the following can you NOT do at a bank?

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deposit money withdraw money

buy something apply for credit

1. deposit money

2. withdraw money

3. buy something

4. apply for creditResponse GridResponse Grid

A bank will issue you money if you present them with a valid…

form

of i

dentif

icat

ion

chec

k lo

an

den

omin

atio

n

0% 0%0%0%

1. form of identification

2. check

3. loan

4. denomination Response GridResponse Grid

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Free Enterprise and Profit

• the US economic system is based on FREE ENTERPRISE (private businesses are free to organize and operate for profit in competition with other businesses without strict government control)

• the only government control is to protect the public interests

Profit

• In a free enterprise system, businesses seek to earn a PROFIT (the difference between the cost to produce the product or provide the service and the REVENUES)

• REVENUE is the full amount of money received

Loss

• In some cases a business is not able to sell its product/service for a PROFIT.

• If the product/service is sold for less than the production cost, then the business takes a LOSS

• The goal in a free enterprise system is to maximize PROFITS and minimize LOSSES

Marketing

• when businesses compete in a free enterprise system, they sell the same or similar products/services to the same MARKET, or group of people to whom the product/service is readily available for purchase

• the goal is to get your target MARKET to buy from you and not your competition

Market Competition

• the most common way businesses compete is through pricing. The goal is to under price your competition, but still make a profit

• Businesses also compete through service quality—they will also offer WARRANTIES (guarantees) on their products.

You are a manufacturer of tires. It costs you $30 to make a particular model of tire, which you sell for $50. What is

your profit?

0%

0%

0%

0% 1. $20

2. $30

3. $50

4. you take a loss, not a profit Response GridResponse Grid

The most common way businesses compete with each other is through…

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government regula... offering complete...

pricing eliminating profits

1. government regulation

2. offering completely different products

3. pricing

4. eliminating profitsResponse GridResponse Grid

Racing Leader Board

Which group faces competition in a free enterprise system?

sto

res

man

ufact

urers

ser

vice

pro

vider

s

all

of th

e ab

ove

0% 0%0%0%

1. stores

2. manufacturers

3. service providers

4. all of the above

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You are a plumber. Your expenses for fixing a sink total $35. You charge the customer $55 for the repair. What is

your revenue?

0%

0%

0%

0% 1. $20

2. $35

3. $55

4. you do not have a revenue in this transaction

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Quality Clocks produced a digital clock for $10 and tried to sell it for $15. Unfortunately,

nobody wanted to pay that much for the clock, so they finally had to drop the price to $8 to sell it. This means that Quality clocks took a loss of

how much?0%0%0%0%

$2 $5 $8 $10

1. $2

2. $5

3. $8

4. $10Response GridResponse Grid

Team MVPPoints Team Participant

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Which of the following would you do at a bank?

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buy products print currency apply for a loan make a profit

1. buy products

2. print currency

3. apply for a loan

4. make a profit

Response GridResponse Grid

Which of the following would have the smallest economy?

Nat

ion

House

hold

Count

y

Sta

te

0% 0%0%0%

1. Nation

2. Household

3. County

4. State

Response GridResponse Grid

Free enterprise means that businesses…

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rely on th... try to tak... compete wi... try to avo...

1. rely on the government to set prices

2. try to take a loss

3. compete with one another

4. try to avoid revenues Response GridResponse Grid

Fastest Responders (in seconds)0 Participant 1

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It cost you $11 to produce a widget. Which price would result in your taking a loss?

0%

0%

0%

0% 1. $10

2. $11

3. $12

4. $20 Response GridResponse Grid

Which of the following statements is true?

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d hou.

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only

the

feder

al g

ov...

only

gove

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ent e

nti...

indi

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0% 0%0%0%

1. individuals and households can have budgets

2. only the federal government has a budget

3. only government entities have economies

4. individuals and households do not have economies

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Racing Leader Board

Which of the following is NOT a financial institution?

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investment advise... bank meat market savings and loan ...

1. investment advisement agency

2. bank

3. meat market

4. savings and loan company Response GridResponse Grid

What percentage of your current points would you like to wager on the next

question?

1. 0%

2. 25%

3. 50%

4. 75%

5. 100%Response GridResponse Grid

Revenues are equal to…

0%

0%

0%

0% 1. the losses taken by the business

2. the prices paid by customers

3. the profit taken by the business

4. the taxes paid by the business

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