Chapter 2, Section 2 – Features of the U.S. Economy
Our economic system (Capitalism) gives individuals opportunities that other systems do not. Use your text to complete the following:
We can own private property and enter into contracts. / How is this different from other economic systems?What are some items that are your private property?
What might be considered a business’s private property?
What role does a contract play in protecting property rights?
We can make individual choices. / List the groups that are allowed to make choices in our economy. Give examples of the types of choices that these groups can make.
We can engage in economic competition. / What does competition between producers encourage?
What does competition between consumers encourage?
We can make decisions based on self-interest. / Why is this important? How does this help the economy?
We can participate in an economy with limited government involvement and regulation.
(Government involvement is what separates our capitalist system from a pure market economy where anything goes!) / Who makes most production decisions in our economy?
What limited role does government play in our economy?
Economic Actors in Free Enterprise
Producersuse factors of production to satisfy wants and needs of society. Consumers influence production by purchasing certain goods and services, but not others. Government oversees and regulates economic activity. All three interact in a market system. The goal of this market system is to answer the questions – what, how, and for whom to produce. The system uses exchange to accomplish this goal. Economists call this market system the Circular Flow of Goods and Services.
The Circular Flow Model
Look at Figure 2.2 at the top of page 34. This is a very simplified view of the way the U.S. economy functions. Notice that there are two markets illustrated here. The product market is colored green and the resource market is colored gold. Also notice that the three basic economic actors are included in the chart: 1. Government (the regulators); 2. Business (producers); 3. Households (consumers). Let’s take a look at how it operates.
Product Market
1. What is being exchanged between government and business?
2. What is being exchanged between business and households?
3. What is being exchanged between households and government?
Resource Market
1. What is being exchanged between government and business?
2. What is being exchanged between business and households?
3. What is being exchanged between households and government?