Part 5—Job SatisfactionPart 5—Job Satisfaction

Chapter 21Chapter 21

Succeeding in Our Succeeding in Our Economic SystemEconomic System

Chapter ObjectivesChapter Objectives

DescribeDescribe the economic system of the the economic system of the United States.United States.

CompareCompare the three forms of business the three forms of business ownership.ownership.

DescribeDescribe the responsibilities involved the responsibilities involved in managing a business. in managing a business.

Key ConceptsKey Concepts

The free enterprise system of the United The free enterprise system of the United States is based on six major factors: private States is based on six major factors: private ownership and control of productive ownership and control of productive resources, a free market, the profit motive, resources, a free market, the profit motive, supply and demand, competition, and limited supply and demand, competition, and limited government involvement.government involvement.

Business can be organized as proprietorships, Business can be organized as proprietorships, partnerships, or corporations.partnerships, or corporations.

Businesses may have tall or flat management Businesses may have tall or flat management structures.structures.

Businesses must be well managed to Businesses must be well managed to succeed. succeed.

Succeeding in Our Succeeding in Our Economic SystemEconomic System

The United States developed The United States developed into a strong industrial nation into a strong industrial nation because it had:because it had: Natural resources.Natural resources. A patent system.A patent system. Skilled labor.Skilled labor. Good management.Good management. Capital for investments.Capital for investments. Free enterprise.Free enterprise.

Capital:Capital: Possessions and money Possessions and money used to increase business.used to increase business.

The Free Enterprise SystemThe Free Enterprise System

Free enterprise Free enterprise system: system: A system A system that allows people that allows people the freedom to make the freedom to make their own economic their own economic decisions.decisions. Also called Also called consumer consumer

economyeconomy, , marketmarket economyeconomy, , profitprofit systemsystem, or , or capitalismcapitalism..

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The Free Enterprise SystemThe Free Enterprise System

Free enterprise is based on six factors:Free enterprise is based on six factors: Private ownership and control of productive Private ownership and control of productive

resources.resources. A free market.A free market. The profit motive.The profit motive. Supply and demand.Supply and demand. Competition.Competition. Limited government involvement.Limited government involvement.

Private Ownership and Private Ownership and Control of Productive Control of Productive

ResourcesResources

Productive resources:Productive resources: Resources such as labor, Resources such as labor, land, capital, and equipment that can be used land, capital, and equipment that can be used to produce and provide goods and services.to produce and provide goods and services.

Needs:Needs: The basics a person must have to live. The basics a person must have to live. Wants:Wants: The items a person would like to have, The items a person would like to have,

but can live without.but can live without.

Free MarketFree Market

A free market gives you the right to decide A free market gives you the right to decide how and where to earn, spend, save, and how and where to earn, spend, save, and invest your money.invest your money.

Companies make a profit when demand Companies make a profit when demand for their products is high. Losses usually for their products is high. Losses usually occur with low demand.occur with low demand.

After a loss, a company will try to find After a loss, a company will try to find ways to become profitable again.ways to become profitable again.

Profit MotiveProfit Motive

Profit:Profit: The money left after costs of The money left after costs of production are subtracted.production are subtracted.

Making a profit is the main reason people Making a profit is the main reason people own businesses.own businesses.

Without profit, people would not want to Without profit, people would not want to work or invest money.work or invest money.

Supply and DemandSupply and Demand

Supply:Supply: The amount of goods and services The amount of goods and services on hand for sale.on hand for sale.

Demand:Demand: The amount of goods and The amount of goods and services bought by consumers.services bought by consumers.

The relationship between supply and The relationship between supply and demand affects the price of goods and demand affects the price of goods and services.services.

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Supply and DemandSupply and Demand

Low Demand + High SupplyLow Demand + High Supply==

Low PriceLow Price

High Demand + Low SupplyHigh Demand + Low Supply==

High PriceHigh Price

CompetitionCompetition

Through competition, businesses are Through competition, businesses are encouraged to produce quality goods and encouraged to produce quality goods and services at low prices.services at low prices.

Reasons prices are high without Reasons prices are high without competition:competition: Businesses can charge high prices without the Businesses can charge high prices without the

fear of losing customers.fear of losing customers. The company sees little need to reduce The company sees little need to reduce

production costs.production costs.

Limited Government Limited Government InvolvementInvolvement

Limited government involvement is Limited government involvement is necessary to keep the free enterprise necessary to keep the free enterprise system free and fair.system free and fair.

Government enforces laws to promote Government enforces laws to promote economic growth and stability and protect economic growth and stability and protect consumers from unsafe and unfair consumers from unsafe and unfair business practices.business practices.

Monopoly:Monopoly: A single company that controls A single company that controls the entire supply of a product or service.the entire supply of a product or service.

How Businesses Are How Businesses Are OrganizedOrganized

Three forms of business ownership:Three forms of business ownership: Proprietorship.Proprietorship. Partnership.Partnership. Corporation.Corporation.

All businesses operate on the same basic All businesses operate on the same basic principle: they must earn a profit to stay in principle: they must earn a profit to stay in business.business.

ProprietorshipProprietorship

Proprietorship: Proprietorship: A business with only one owner.A business with only one owner. The owner takes all the risks and assumes all The owner takes all the risks and assumes all

the profits or losses.the profits or losses. Most proprietorships are small; however, a few Most proprietorships are small; however, a few

are multimillion dollar businesses.are multimillion dollar businesses.

PartnershipPartnership

Partnership: Partnership: A business owned and run by A business owned and run by two or more people.two or more people.

The work, profits, and debts are shared.The work, profits, and debts are shared. Advantages:Advantages:

More money to finance the business.More money to finance the business. Skills and experience of two people.Skills and experience of two people.

Disadvantages:Disadvantages: Possibility of disagreements.Possibility of disagreements. One partner feels they are assuming more One partner feels they are assuming more

work than the other.work than the other.

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PartnershipPartnership

In a limited partnership, In a limited partnership, one partner invests in the one partner invests in the business but does not business but does not work in it.work in it.

Limited, or silent, partners Limited, or silent, partners receive a percentage of receive a percentage of the profit.the profit.

If a business fails, the If a business fails, the limited partner is only limited partner is only responsible for debts up to responsible for debts up to the amount of their the amount of their investment.investment.

CorporationCorporation

Corporation: Corporation: A business owned by many A business owned by many people.people.

Sales of stock provide capital for starting Sales of stock provide capital for starting the business.the business.

Stockholders have limited liability and are Stockholders have limited liability and are only responsible for debts up to the only responsible for debts up to the amount of their investment.amount of their investment.

Stockholders usually have little or no input Stockholders usually have little or no input in the decisions that are made.in the decisions that are made.

How Businesses Are How Businesses Are StructuredStructured

Your job responsibilities may be influenced Your job responsibilities may be influenced by the company’s management structure.by the company’s management structure.

The two types of management structures The two types of management structures are tall (vertical) and flat (horizontal).are tall (vertical) and flat (horizontal).

Organization chart:Organization chart: A chart that shows an A chart that shows an organization’s internal structure.organization’s internal structure.

Tall StructureTall Structure

Low-level workers are removed from top Low-level workers are removed from top managers.managers.

Jobs are more specialized.Jobs are more specialized. Responsibilities are narrower.Responsibilities are narrower.

Flat StructureFlat Structure

Workers usually have closer contact with Workers usually have closer contact with management.management.

Employees have a broad range of skills and Employees have a broad range of skills and greater responsibility.greater responsibility.

Emphasis is on teamwork.Emphasis is on teamwork.

Business ManagementBusiness Management

Managing a business involves:Managing a business involves: Planning – setting goals to make the business more Planning – setting goals to make the business more

successful and profitable.successful and profitable. Staffing – hiring workers.Staffing – hiring workers. Directing – overseeing the manufacture of goods.Directing – overseeing the manufacture of goods. Marketing – promoting, selling, and distributing.Marketing – promoting, selling, and distributing. Financing – keeping records of accounts, collecting Financing – keeping records of accounts, collecting

payments, handling payroll, and paying taxes.payments, handling payroll, and paying taxes. Workers with the most experience are usually Workers with the most experience are usually

promoted to positions in management.promoted to positions in management.

Thinking BackThinking Back

What is a free enterprise What is a free enterprise system?system?

Compare the three Compare the three forms of business forms of business ownership.ownership.

Explain the relationship Explain the relationship between supply and between supply and demand.demand.

Describe the Describe the responsibilities involved responsibilities involved in managing a business.in managing a business.