Lack of capital Economic Systems: • Traditional Economy – rural, agrarian few exist • Planned Economy – control by government over – who, what, how, price o Communist System – complete control o Socialist System – government control of social services and utilities • Market Economy – individuals decide on all aspects of business o Free market o Free enterprise o Capitalist systems • Mixed Economy – combination of Planned Economy and Market Economy – economic decisions made by business individuals with some government control and oversight (US, Great Britain, Germany) Market Forces – Set Prices – thru the Laws of Supply and Demand • Demand is willingness and ability for consumer to buy goods and services • Supply is willingness and ability of producer to produce goods and services Law of Supply – producers will produce more products as price increases and less product as the price decreases Law of Demand – consumers will buy more products as price decreases and less as the price increases Equilibrium Point or Market Price – a point at which a balance between supply and demand is reached Supply curve – indicates the amount of goods or services offered at differet price points Demand curve – show how many products will be bought at different prices More demand than supply – shortage More supply than demand – surplus Supply Factors –
• Changes in the price of raw materials • Forecast of future prices (up or down) • Technology changes • Competitors (increase and decrease) • Price of substitute goods Demand Factors- • Income distribution (increase or decrease) • Consumer preferences • Population age and distribution • Demand for Substitute goods (increase or decrease) Characteristics of Market Economy and Mixed Economy • Competition (see below) • Right to own property • Freedom of choice in buying and selling goods and services • Profits • Types of Competition o Monopoly – lack of competition – one dominant supplier to an industry, controls pricing o Monopolistic – several producers make similar products that are perceived as slightly different o Oligopoly – few producers, little differentiation of product o Perfect – many producers no perceived differences Aggregate Output – total amount of goods and services produced in an economy in a given period (GDP) Gross Domestic Product – total value of all goods and services produced domestically in a given period (goods produced outside of the country are not included) (GNP) Gross National Product – total value of all goods and services produced by a nation’s companies regardless of where the facility is located in a given period of time (less accurate) (CPI) Consumer Price Index – based on the market price of a basket of goods and services vary from month to month (food, housing, clothing, transportation, medical care, recreation, education, and misc. items, such as haircuts and cigarettes) (PPI) Producer Price Index – measurement of selling prices received by domestic producers of goods and services for their products, includes prices for raw materials, component goods, and finished goods
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