Transcript Production, Distribution, and Consumption

CHAPTER 8
Copyright © 2006 by the McGraw-Hill Companies, Inc.
CHAPTER 8: Production, Distribution, and Consumption
The study of economics focuses on the
following:
• The production and distribution of
goods and services and how they relate
to buying, selling, and making a profit
• The role of government in regulating
business activities
• How a society accumulates and
distributes wealth
Copyright © 2006 by the McGraw-Hill Companies, Inc.
CHAPTER 8: Production, Distribution, and Consumption
In a primitive economy the acquisition and
distribution of goods is absorbed within the
traditional mode of existence.
• Shared materials
for clothing and
shelter
• Seasonal migration
• Strong communal
life
The San people of Africa have lived in
a primitive economic society for over
20,000 years.
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CHAPTER 8: Production, Distribution, and Consumption
(Continued)
Capitalism is based on the private ownership of
property and the resources of production.
The United States economy is based
on the theory of capitalism.
• Wide selection of
goods to purchase
• Regulation through
competition
• Focus on the
individual
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CHAPTER 8: Production, Distribution, and Consumption
Socialism is a system in which major industries
may be owned privately or publicly but are
subject to governmental control.
• Limited choice of
goods to purchase
• Central regulation
of supply and price
• Focus on society’s
needs as a whole
In Norway, the government controls
key industries, such as petroleum and
oil production.
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CHAPTER 8: Production, Distribution, and Consumption
(Continued)
Communism is a system in which property is
owned by the state and all citizens share in the
common wealth according to their need.
North Korea is one of the few
remaining countries that practice
communism.
• Limited choice and
ability to purchase
goods
• Regulation according
to abilities and needs
• Focus on the group
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CHAPTER 8: Production, Distribution, and Consumption
The modern economy first developed in Europe
during the late Middle Ages.
• Political fragmentation under the feudal
system created a situation that allowed
for the growth of freedom and the
economy.
• The modern economy did not emerge
due to deliberate planning, but as a
response to local conditions.
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CHAPTER 8: Production, Distribution, and Consumption
Supply and demand are the basic factors that
determine price.
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• Supply: the amount
of goods and
services available
for sale
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Supply and demand are the basic factors that
determine price.
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• Demand: the desire
and ability of
consumers to buy
a good or service
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Supply and demand are the basic factors that
determine price.
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• Law of Supply and
Demand: the
market prices of
goods and services
are determined by
the relationship of
supply to demand
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CHAPTER 8: Production, Distribution, and Consumption
Measures of economic activity give an
indication of how the economy is doing and
where it might be heading.
• The Dow Jones
Industrial Average
• Gross Domestic
Product (GDP)
• Rate of inflation
• Unemployment rate
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CHAPTER 8: Production, Distribution, and Consumption
Both GDP and GNP tend to fluctuate in a
pattern called the business cycle.
The last, as well as the worst, depression
in American history, called the Great
Depression, occurred in the 1930s.
• A period of growth, or
a boom, is followed
by a period of
slowdown called a
recession.
• A severe recession is
called a depression.
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CHAPTER 8: Production, Distribution, and Consumption
Government can help an economy by:
• Providing security
• Requiring dependable
standards
• Providing trustworthy
courts
• Enforcing laws
• Maintaining international
agreements
In 2002, the U.S. Department of Justice
formed a special task force to investigate
possible fraud and insider trading in the
wake of Enron Corporation’s bankruptcy.
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CHAPTER 8: Production, Distribution, and Consumption
(Continued)
Government can hurt an economy by:
• Being corrupt
• Conducting unfair
trials
• Oppressing and
exploiting residents
• Spending unwisely
For nearly ten years, William Marcy “Boss”
Tweed ran a corrupt political machine that
profited at the taxpayers’ expense and put
New York City’s economy in serious
jeopardy.
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CHAPTER 8: Production, Distribution, and Consumption
(Continued)
Government can influence economic activity
through its taxation policy and enforcement.
Types of Government Taxes
Income tax
A percentage of wages, profits, and other income paid to
federal, state, and local governments
Social Security A percentage of wages paid into a public insurance fund
tax
that can be drawn on upon retirement
Capital gains
tax
Money paid to the federal government out of profits from
the sale of land, buildings, stocks, and other capital assets
Property tax
Money paid (usually to a local government) by the owners
of real estate
Sales tax
Money paid to federal, state, or local governments on the
purchase of goods or services
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CHAPTER 8: Production, Distribution, and Consumption
Financial institutions accept deposits, lend
money, safeguard and transfer funds, guarantee
creditworthiness, and exchange money.
• For individuals: savings banks, savings
and loan associations, and credit unions
• For businesses: commercial banks
• For the government and other banks:
central banks
• For governments and nations: international
financial institutions
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CHAPTER 8: Production, Distribution, and Consumption
When deciding how to manage finances, a
person needs to think about the following:
•
•
•
•
•
•
Setting priorities
Making a budget
Banking and saving
Investing
Controlling debt
Planning for retirement
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CHAPTER 8: Production, Distribution, and Consumption
The distribution of wealth is the way that money
is divided among the people in a group,
country, or the world.
• The disparity between
the rich and the poor is
growing larger.
• This will inevitably
have a continuing
impact on current
events.
U.S. Distribution of Wealth, 1997
Portion of Population (% of Wealth)
Next 10%,
11.50%
Next 40%,
15.20%
Bottom
40%,
0.50%
Next 5%,
11.40%
Top 1%,
39.10%
Next 4%,
22.30%
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CHAPTER 8: Production, Distribution, and Consumption
Economic development is encouraged by the
following practices:
The invention of the Internet is a major
force behind the developing global
economy.
• Inventiveness and
ingenuity
• Organization and
efficiency
• Utilization of natural and
human resources
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CHAPTER 8: Production, Distribution, and Consumption
THE END
Practice the skills you learned in this chapter by taking
the Chapter Review Quiz or the GED Practice Quiz.
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