Comparative Political Systems Chapter 22

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Comparative Economic Systems
Chapter 23
Chapter 23
Topics of Discussion
I – Capitalism
II – Socialism & Communism
Capitalism
Chapter 23 – Section 1
Chapter 23 Section 1
 Vocabulary
 Capitalism
 Factors of Production
 Capital
 Entrepreneur
 Free Enterprise System
 Free Market
 Supply and Demand
 Monopoly
 Laissez-Faire
Chapter 23 Section 1
 Main Idea
 Today we will go deeper in depth on our
discussion of the American Free Enterprise
system. We will examine its origins and how
it works. Later we will discuss the other end
of the spectrum (Socialism & Communism)
Chapter 23 Section 1
 Objectives
 1- Identify the factors of production
 2 – Describe the free enterprise system and
laissez-faire theory
 3 – Analyze the role of government in a
mixed economy
 4 – Compare and contrast three types of
business organizations
 Explain the role of profit and loss in a free
enterprise system
Chapter 23 Section 1
 Resources are necessary to any nation’s
economy, no matter the system in place.
Economists call these basic resources, which
are used to make all goods and services, the
FACTORS OF PRODUCTION
Chapter 23 Section 1
 Land
One factor of production is land, which in
economic terms includes all natural resources
Land has a variety of economic uses such as
agriculture, mining and forestry
 Timber (For construction)
 Coal & Petroleum (For fuel)
 Iron and Copper (Making tools and construction)
 Water (Nutrition, cleaning & solutions)
Chapter 23 Section 1
 Capital
 CAPITAL includes all the human-made
resources that are used to produce goods and
services. Physical capital includes:
 Buildings
 Machines
 Computers
 Any other supply/materials workers need to do
their job
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 Labor
 Labor is the work done by men and women to
produce goods and services
People that actually do the work
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 The Role of the Entrepreneur
 An ENTREPRENUER, literally an “enterpriser”, is
an individual with the drive and ambition to risk
land, labor, and capital resources to produce goods
or offer services
 By calling it a risk, the implications exists that an
entrepreneur may “win” or “lose”
 The entrepreneur is the lifeline of the American
economy
Chapter 23 Section 1
 Free Enterprise System
 The FREE ENTERPRISE SYSTEM is an
economic system characterized by private or
corporate ownership of capital goods and
investments that are determined by private
decision rather than by state control
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Private Ownership
The resources used to produce goods or services are owned by private
individuals or corporations.
Profit
Individual Initiative
The “profit motive” is the desire to All individuals are free to start and
gain from business dealings.
run their own businesses.
Competition
Competition is a situation in which a number of companies offer the
same product or service. Under competitive conditions, prices are
determined by the LAW OF SUPPLY AND DEMAND.
Chapter 23 Section 1
Chapter 23 Section 1
Chapter 23 Section 1
Laissez-Faire and Mixed Economy
 LAISSEZ-FAIRE holds that government should play a very
limited, hands-off role in society
 The proper role of government in economic affairs should be
restricted to functions intended to promote and protect the free
play of competition and the operation of the laws of supply and
demand
Chapter 23 Section 1
 A Mixed Economy
 Economists usually describe an economy in
which private enterprise and governmental
participation coexist as a mixed economy
 The American economy is a mixed economy
 Government at all levels in American society
has some influence on the economy
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Types of Business Organizations
 Sole Proprietorships
 Businesses owned by a
single individual
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Types of Business Organizations
 Partnerships
 Businesses owned by a
two or more individual
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Types of Business Organizations
 Corporation
 A corporation has many
owners, called
shareholders. A share is a
percentage of ownership
in a company
 Corporations have the
advantage of being able to
draw from large pools of
investor capital, but also
have the disadvantage of
having their earnings
taxed twice
Chapter 23 Section 1
Profit and Loss
 Profit is the amount of money a
business earns once the costs
incurred from running that
business are subtracted
 Income – Expenses = Profit (or loss)
 If earnings are less than
the expenses, the business
has not made a profit;
instead, it has taken a loss
 Taking risks and making
investments are an
essential part of the
capitalist system

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