Role Of Consumers
Economic Systems
Economic system refers to the process used by a society to decide what to produce, how to produce it, and for whom (how to distribute it among the population). There are 3 major types of economic systems: hands-on, hands-off, and compromise.
Hands-On Systems
A hands-on system is one where the government or central authority controls most of the decisions involving what will be produced, how, and for whom.
Two types of hands-on systems:
Communist. The government owns and controls most, if no all, of the productive resources of the nation.
Socialist. Characterized by a large degree of government control of many of the decisions within the nation.
Hands-Off Systems
A hands-off system is one where there is little or no role for government or a central authority.
Traditional. The people decide what decisions will be made and how they will be made. Often these systems are based on long-established traditions, religion, or cultural values.
Capitalist. When our country first began, it started as a pure free-enterprise system, also known as capitalism. Capitalism is an economic system in which producers and consumers are free to operate and compete in business transactions with minimal, if any, government interference or regulation.
Compromise Systems
Most nations today have some form of mixed economy, which means it contains elements of more than one type of economic system. Our U.S. economy is considered a market economy, because both market forces and government decisions determine which goods and services are produced and how they are distributed. In a market economy, the government also influences and controls some choices. Government is also able to impose price controls and other regulations.
Elements of a Market Economy
Scarcity
In any economy, consumers' wants are unlimited, while the resources for producing the products to satisfy these wants are limited. This basic economic problem is called Scarcity. A country's economic system determines what products will be produced with its limited resources. As an induvidual consumer, you have limited resources. You must decide what to buy with your limited income to achieve the greatest satisfaction or utlility.
Consumer Power
Consumers have the ultimate power in a market economy; this is known as consumer sovereignty. Consuemrs determine what is produced and at what price. If consumers refuse to buy a good or service still does not sell or sales do not generate a profit, producers will no longer provide it.
Producer Power
Producers also have power in a free-enterprise system because they can employ various techniques to influence consumer buying decisions.
Parts of an Economic System
Competition
In order for prices to rise and fall with changes in supply and demand, competition must exist. Competition is the rivalry amoun sellers in the market to win customers. There are 3 basic forms:
Pure Competition. With pure competition, there are many sellers and many buyers in the market, resulting in improved quality and lower prices.
Oligopoly. An oligopoly exists where there are only a few sellers producing a very similar product or service.
Monopoly. A monopoly is a market with many buyers but only one seller.
Purchasing Power
For a market economy to operate, citizens must have the ability to buy. In the U.S., most adults have income from their jobs that they can spend on goods and services.
Purchasing Power - The value of money, measured in the amount of goods and services that it can buy.
In a period of inflation, when prices are generally rising in the economy, purchasing power decreases. Purchasing power also decreases during periods of recession, when production, employment, and income are declining. People who lose their jobs or have their wages reduced cannot buy as many goods. The result is an overall loss of purchasing power in the economy.
The Role of Money
All economic systems use some form of money or medium or exchange. Money is anything that can be used to settle debt.
Divisibility. In the U.S., money, or currency, iss divided into denominations for ease in completing transactions. The dollar bill is easily recognizable, and for sums less than a dollar, coins are used. The largest denomination produced for circulation is the $100 bill.
Durability. Money must be transferred from one person to another. Currency lasts a long time before it must be reissued. Coins are produced by the U.S. Mint; paper money is produced by the Bureau of Engraving and Printing.
Store of Value. To serve as a medium of exchange, money must have a store of value, or be recognized to represent that value.
Deception - occurs when false or misleading claims are made about the quality, the price, or the purpose of a particular product.
Bait and Switch - an illegal sales technique in which a seller advertises a product with the intention of persuading consumers to buy a more expensive product.
Fake Sales - a merchant advertises a big sale but keeps the items at regular price or makes the price tags look like price reduction.
Economic system refers to the process used by a society to decide what to produce, how to produce it, and for whom (how to distribute it among the population). There are 3 major types of economic systems: hands-on, hands-off, and compromise.
Hands-On Systems
A hands-on system is one where the government or central authority controls most of the decisions involving what will be produced, how, and for whom.
Two types of hands-on systems:
Communist. The government owns and controls most, if no all, of the productive resources of the nation.
Socialist. Characterized by a large degree of government control of many of the decisions within the nation.
Hands-Off Systems
A hands-off system is one where there is little or no role for government or a central authority.
Traditional. The people decide what decisions will be made and how they will be made. Often these systems are based on long-established traditions, religion, or cultural values.
Capitalist. When our country first began, it started as a pure free-enterprise system, also known as capitalism. Capitalism is an economic system in which producers and consumers are free to operate and compete in business transactions with minimal, if any, government interference or regulation.
Compromise Systems
Most nations today have some form of mixed economy, which means it contains elements of more than one type of economic system. Our U.S. economy is considered a market economy, because both market forces and government decisions determine which goods and services are produced and how they are distributed. In a market economy, the government also influences and controls some choices. Government is also able to impose price controls and other regulations.
Elements of a Market Economy
Scarcity
In any economy, consumers' wants are unlimited, while the resources for producing the products to satisfy these wants are limited. This basic economic problem is called Scarcity. A country's economic system determines what products will be produced with its limited resources. As an induvidual consumer, you have limited resources. You must decide what to buy with your limited income to achieve the greatest satisfaction or utlility.
Consumer Power
Consumers have the ultimate power in a market economy; this is known as consumer sovereignty. Consuemrs determine what is produced and at what price. If consumers refuse to buy a good or service still does not sell or sales do not generate a profit, producers will no longer provide it.
Producer Power
Producers also have power in a free-enterprise system because they can employ various techniques to influence consumer buying decisions.
Parts of an Economic System
Competition
In order for prices to rise and fall with changes in supply and demand, competition must exist. Competition is the rivalry amoun sellers in the market to win customers. There are 3 basic forms:
Pure Competition. With pure competition, there are many sellers and many buyers in the market, resulting in improved quality and lower prices.
Oligopoly. An oligopoly exists where there are only a few sellers producing a very similar product or service.
Monopoly. A monopoly is a market with many buyers but only one seller.
Purchasing Power
For a market economy to operate, citizens must have the ability to buy. In the U.S., most adults have income from their jobs that they can spend on goods and services.
Purchasing Power - The value of money, measured in the amount of goods and services that it can buy.
In a period of inflation, when prices are generally rising in the economy, purchasing power decreases. Purchasing power also decreases during periods of recession, when production, employment, and income are declining. People who lose their jobs or have their wages reduced cannot buy as many goods. The result is an overall loss of purchasing power in the economy.
The Role of Money
All economic systems use some form of money or medium or exchange. Money is anything that can be used to settle debt.
Divisibility. In the U.S., money, or currency, iss divided into denominations for ease in completing transactions. The dollar bill is easily recognizable, and for sums less than a dollar, coins are used. The largest denomination produced for circulation is the $100 bill.
Durability. Money must be transferred from one person to another. Currency lasts a long time before it must be reissued. Coins are produced by the U.S. Mint; paper money is produced by the Bureau of Engraving and Printing.
Store of Value. To serve as a medium of exchange, money must have a store of value, or be recognized to represent that value.
Deception - occurs when false or misleading claims are made about the quality, the price, or the purpose of a particular product.
Bait and Switch - an illegal sales technique in which a seller advertises a product with the intention of persuading consumers to buy a more expensive product.
Fake Sales - a merchant advertises a big sale but keeps the items at regular price or makes the price tags look like price reduction.