Economics

Chapter 3: Economics in the United States

Agenda for Today

• Review• Chapter 3 Slide show• Homework– Quiz on Ch 1-2 Thursday– Complete “Defining Important Economic

Principles” Ch 3, Lesson 1

At the end of this lesson, you should be able to :

• Term for the basic economic problem that we want more than is available

• Type of economic system where the government answers all economic questions

• Name for economic system where businesses compete with one another for profit

• Part of free market system belief that government should stay out of economy

Is Michael Moore right? Do our founding documents say anything about our economic

system?

• 57:43-58:27

What economic ideas exist in the Declaration of Independence?

• Declaration of Independence– Declares that colonies are

free of British rule– Lists reasons why colonies

are separating• States that king

prevented colonies from the liberty of trading with other countries– I.e. Liberty to do

business{We declare independence because the King}….For cutting off our Trade with all parts of the world:For imposing Taxes on us without our Consent:

20:16-25

What economic ideas exist in the Constitution?• US Constitution– Supreme law of the United

States– One purpose of writing

Constitution was to protect property and regulate business

• Article I, Section 8– Gives Congress right to control

trade among the states– Says only Congress can print

money

The Congress shall have Power [...] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

What economic ideas exist in the Bill of Rights?• Bill of Rights– 1st ten Amendments

• Amendment 4– Protects property• Police need search

warrant to search• Amendment 5– Gives government

power of eminent domain• But says gov must

compensate property owners for loss of land

No person shall…be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

What does the 14th Amendment say about citizens?

• Defines citizenship• Says that a citizens

cannot be “deprived of life, liberty ,or property, without due process of law”

• Due Process–Clear, proper,

and fair legal process

Explain the meaning of this political cartoon.

nor shall any State deprive any person of life, liberty, or property, without due process of law;

So what do you think? Were the Founding Fathers capitalists?

So were our founders capitalists?Free-market capitalism is losing supporters these days. Wall Street occupiers blame banks, financial firms, and Wall Street for the bad economy. President Obama derides free markets, in true straw-man fashion, as you’re-on-your-own economics with “a free license to take whatever you want from whoever you can.” Even some Republican presidential candidates have inveighed against capitalism.What about the Founders? What did they think about free-market capitalism? Although the term capitalism was scarcely in use at the time of the Founding, the Founders supported the principle of economic liberty underlying it. The Founders understood that property rights and free markets were constitutive elements of what it means to be free. They therefore believed that government has a responsibility to protect the rights of all to participate in the economy by upholding contracts, lifting artificial trade barriers, and protecting the right to acquire, possess, and freely use property.The Founders did not, however, advocate a completely “laissez-faire” economic policy, since they understood that the government had a role to play—a limited role—in regulating the economy. For example, at the time of the Founding, the government inspected goods that were imported into the United States and created licensing systems for certain professions—such as medicine—that were essential to public health and safety. Such regulations strengthen a free-market economy by protecting consumers from fraud and by expanding the opportunity for all to participate in the market by ensuring the reliability of goods and services.

Today’s Agenda

• Check and go over homework• Complete “Defining Important Economic Principles” Ch 3,

Lesson 1

• Review• Capitalism: A Love Story

Review1. command economic system in which government plans the economy and owns all means of

production (no profit, no competition, no private businesses)2. term for basic economic problem that we want more than we can have3. the cost of what is given up when a different option is chosen4. term for characteristic of capitalism where government's policy toward economy is "let it be"5. Study of how people and countries make decision about how to use their scarce resources in the

best way6. Economy based on how ancestral custom answered basic economic questions7. type of command economic system in which the government is democratically elected8. something that is required in order to survive (water, food)9. type of resource used to do work10. a tangible product that people buy11. something not needed to survive but makes life better (Iphone)12. aka free market economic system in which businesses are privately owned and consumers decided

what is produced and who gets it13. Economic system in which government leaders answer the basic economic questions14. Adam Smith's term for the force of the free market that allows people to pursue their own

interests (profit) yet benefit society (good products, fair prices)15. Raw materials found on earth that are used to create a good16. work done for someone (not tangible)17. type of command economy which allows private ownership and profit in a totalitarian fascist

dictatorship18. 1man-made tools used to create a good or product

Today’s Agenda

• Finish Slide Show on Ch 3• Steven Jobs Biography• Homework– Look over notes on Ch 3 notes

What is the free enterprise system?• Another name for American

capitalism• Based on idea that

Americans are free– to own property– To become entrepreneurs• Dream of a new

product or service and turn it into a business

– to buy and sell things• Consumer Sovereignty – Buyers have freedom to

choose which products to buy

What is the role of competition in the free enterprise system?

• Sellers must sell their good or service in order to survive

• Compete with one another for scarce sales

• Competition– Encourages businesses to

make best products at lowest price– The best business “wins”

by earning a profit

What is a profit?• Profit

– Money left after the bills are paid• Profit= Total Revenue-Total Cost• Total Revenue

– All money generated by selling good or service• Ex. A bike manufacturer• Sold 1, 000 bikes for $200• TR= $200, 000

• Total Cost– All expenses of making a bike

• $150 to make a bike• 1,000 bikes at $150 each• TC= $150, 000

• Profit = $200, 000- $ 150, 000– $50, 000

How are costs measured?• Fixed Cost– Expense that stays the same• Sometimes called overhead• Capital goods- tools/

machines to make bikes cost stays the same over time

• Variable Cost– Expenses that change• Labor and raw materials–Wages, insurance rates,

alloy metals, rubber change with business cycle