Chapter 2 - The U.S. Economic System
1. Principles of the U.S. Economic System (p. 25-27) the economic system of the United States is known as capitalism. Capitalism is founded on certain principles, they are listed below; (16 points)
a. Free enterprise: Free enterprise is an economic system that provides individuals the opportunity to make their own economic decisions, free of government constraints, and as private profit-potential businesses. The system allows for the privilege of individual ownership of property and the means of production.
b. Private property: Having the right to private property means allowing individuals to own property and use it in any lawful ...view middle of the document...
They are listed below. (20 points)
a. Prices affect WHAT goods and services will be produced. The fundamental economic question of WHAT goods and services are produced in a market economy is ultimately decided by the prices that consumers are willing and able to pay for the things they want. Example: While you and all your friends might love to buy a new mountain bike for $25, your local bike shop is not likely to offer any at that price. Rather than profiting from the sale, it would lose money on the sale. If you and your friends, however, were willing to pay $500 for such a bike, the store would make sure that there were plenty from which to choose.
b. Prices affect HOW goods and services are produced. Business firms are constantly seeking ways in which to increase their profits. Since profits represent the difference between income and costs, a surefire way to increase profits is to reduce costs while maintaining or increasing income. Example: Retail shops have to decide how much of their operations they can turn over to computers. It doesn’t make sense to hire five employees and also use computers or have six employees doing the necessary operations without computers. Usually the use of computers reduces the number of workers needed. Since buying and maintaining computers is costly, the final determination would be to invest in the lowest cost. Since individual business firms in a competitive market have little or no control over prices, their efforts to reduce costs can make the difference between profit and loss.
c. Prices affect WHO will receive goods and services. Since there is not enough of everything to go around, societies have to find ways to ration the things they produce. The U.S. economic system, like all market economies, relies on prices to ration its output. Those willing and able to pay the price asked fro a good or service can obtain it. Those unable or unwilling to pay the price will simply do without. Since we have to pay for the goods and services we want, the amount of things that we can have depends on our income. Here again, price comes into play because the amount that people earn is largely a result of the price employers are willing to pay for their services and the availability of workers willing to accept that wage. Example: There are millions of people willing to pay to see the best tennis, football, and baseball players in action. There are only a handful of people who can perform at championship levels. Consequently, some of the highest paid people in the country are athletes.
3. List and briefly explain six goals of our economic system. (p. 42) (12 points)
Economic Freedom: Economic freedom refers to the freedom of the marketplace. It deals with freedoms guaranteed to consumers, producers, workers, savers, and investors, and other participants in the economy to use their resources as they see fit.
Economic Justice: Economic justice refers to society’s version of...