Understanding the U.S. Economic System and Principles of Taxation

1. Chapter 5 The U.S. Economic System

2. 5.1 What is Economics? • Economics= how we use scasre resources to produce and distribute scasre resources to produce and distribute goods and services that satisfy people’s wants and needs {Study of choices about using resources}

3. Macroeconomics= on a national and global scale, concerned with the economic decisions made by governments • Microeconomics= economic decisions made by individual people and businesses

4. Economic Systems • The way a society uses resources to satisfy its people’s needs and wants • Economic resources- money, time, skills, tools. • Scarcity = trying to satisfy unlimited wants with limited resources • Opportunity cost= what we give up in order to something else.

5. 3 Basic Questions • 1. What will be produced? • 2. How will they be produced? • 3. Who should share the goods and services that are produced? • How an economy answers these questions determined what kind of economic system

6. Types of Economic Systems • 1. Traditional Economy = decisions about what to produce , how and for whom are based on traditional customs and beliefs. • People hunt, fish etc as their ancestors did • Usually poor

7. 2. Command Economy = decisions about what to produces, how and for whom are decided by government • Also called controlled government • The people have nothing to say about it • Communist countries

8. 3. Market Economy= decisions are made by individuals acting in their own self interest • Capitalist system • 4. Mixed Economy= combination of command and market {most countries are this type of system}

9. The U.S. Economic System • The economic goals of US are….. Growth Efficiency Stability Justice Security • Charaterics • Private Property • Freedom of Choice • Free Enterprise • Limited government control

10. 5.2 Producers and Consumers • The Profit Motive= earnings after all costs of production have been paid • Factors of Production= types of resources needed to produce goods and services Land Labor Capital Entrepreneurship Technology

11. Productivity= a measure of the efficiency with which goods and services can be produced • Can be increased through technology and specialization {focus on a certain thing}

12. Business Organizations • Sole Proprietorship= owned and controlled by 1 person • Partnership= owned by 2 or more people • Corporation= organization that is owned by people who have shares of stock known as shareholders • Discuss Pros and Cons of each

13. Prices in a Free Market • Demand= the quantity of a good or service that consumers are WILLING and ABLE to buy at a given price • Law of Demand= when price goes down, demand goes up, etc. etc. • Supply= quantity of a good or service that producers are WILLING and ABLE to sell at a certain price • Law of Supply= when price goes up, supply goes up • Interaction of demand and supply – pg 136-137

14. Production Costs Affects price of product – read page 137 • Competition = rivalry between 2 or more businesses that offer similar goods or services Businesses want to lower prices to get business but also want to make a profit

15. Consumers in the Marketplace • Consumer sovereignty= controlling the influence of consumers • Boycott= organized refusal to purchase certain goods or services

16. 5.3 The Government’s Roles • Levels of Government Federal, State, Local • Provide Public Goods National defense, police, fire, education, public transportation, parks, highways

17. Redistributing income • Social Security= an insurance program that is sponsored by federal government Paid for by tax on earners wages Based on previous earnings Retirement, survivor’s, disability • Unemployment Insurance

18. Public Assistance Programs (pg 142-143) Temporary Assistance to Needy Families ( TANF) Supplemental Security Income (SSI) Food Stamps WIC Free or Reduced school lunches Medicaid State Children Health Insurance Housing Programs

19. Regulating Economic Activity • Protecting the environment • Protecting Consumers • Protecting Workers • Promoting Competition Monopoly= a single company controls the supply of goods or services Antitrust laws= regulate unfair business practices that reduce competition

20. Ensuring Economic Stability • Fiscal policy= adjusting its policies about taxing and spending • Monetary policy= regulating interest rates and money supply

21. 5.4 Principles of Taxation • Purpose of Taxation Tax= required payment to the government To fund public goods and services To influence behavior To stabilize economy To redistribute income

22. Taxes people pay • Income tax= tax on money you earn • Social Security Tax= pay for SS program • Sales Tax= what consumers pay on good and services bought • Excise tax- on manufacture or sale of certain goods and services • Property tax- tax on the value of your property

23. Estate and Gift tax • Business or license tax • Custom duties and tariffs • See 5-16 on page 149 • Read Taxes and Fairness as class on pg 149-150

24. Relationship of Taxes • Proportional Tax= same % out of everyone's income • Progressive Tax= larger % of income of high-income people than low income people • Regressive tax = takes a larger % of the income of low income people than that of high income people