ECONOMIC SYSTEMS
&
TYPES OF BUSINESSES
Name: ______Period: ______
VOCABULARY
ECONOMIC SYSTEMS- the way a society uses its scarce resources to satisfy its people’s unlimited wants
TRADITIONAL ECONOMY- economic situation in which families, clans, or tribes make economic decisions based on customs and beliefs that have been handed down from generation to generation
COMMAND ECONOMY- the government decides what goods and services will be produced, how they will be produced, and how they will be distributed
SOCIALISM- an economic system where the government owns some or all of the factors of production
COMMUNISM- a more extreme form of socialism in which there is no private ownership of property and little or no political freedom
CENTRALLY-PLANNED ECONOMY- a system in which the society’s leaders, usually members of central government make all economic decisions
MARKET ECONOMY- based on individual choice, not government directives
MIXED ECONOMY- economic system that has elements of traditional, command, and market economies
FREE ENTERPRISE/CAPITALISM- anyone is free to start a business or enterprise
PUBLIC SECTOR- the area of the nation’s affairs under governmental rather than private control
PRIVATE-SECTOR- the area of the nation’s affairs under private rather than government control
ENTREPRENEURSHIP- the combination of vision, skill, ingenuity, and willingness to take risks that is needed to create and run new businesses
SOLE PROPRIETORSHIP- a business owned and controlled by one person
PARTNERSHIP- a business co-owned by two or more people or “partners”, who agree on how responsibilities, profits, and losses should be divided
CORPORATION- a business owned by shareholders, also called stockholders, who own the rights to the company’s profits but face only limited liability for the company’s debts and losses
STOCK MARKET- a particular market where stocks and bonds are traded
STOCK- shares of ownership in a corporation
BOND- a contract a corporation issues that promises to repay borrowed money, plus interest, on a fixed schedule
FRANCHISE- a business made up of semi-independent businesses that all offer the same products or services
What economic system does the U.S. have? How do you know? / What are the advantages and disadvantages of a traditional economic system?Advantages: / Disadvantages:
Why are traditional economies being forced to change? / Which economic system do YOU think would be best? Why do you think that?
COMMAND ECONOMY- the government decides what goods and services will be produced, how they will be produced, and how they will be distributed
SOCIALISM- an economic system where the government owns some or all of the factors of production
COMMUNISM- a more extreme form of socialism in which there is no private ownership of property and little or no political freedom
CENTRALLY-PLANNED ECONOMY- a system in which the society’s leaders, usually members of central government make all economic decisions
Look at page 43 in your textbook and fill in the chart below:
COMMUNISM / SOCIALISM / MARKET SYSTEMWHO OWNS RESOURCES?
HOW ARE RESOURCES ALLOCATED?
WHAT ROLE DOES GOVERNMENT PLAY?
Based on the chart, how do Communist systems answer the three basic economic questions?
What impact do Command economies have on people? (p. 46 in textbook)ADVANTAGES / DISADVANTAGES
Why are consumer goods often in short supply in a command economy? (p. 46)
Why do these economies often fail?
Look at page 44 in your text book to fill in the graphic organizer below:
MARKET ECONOMY- based on individual choice, not government directives
There are SEVEN FUNDAMENTALS of a market economy. Fill in the graphic organizer below based on the graphic on p. 51 in your textbook. In the inner circle, put the fundamental. In the outer circle explain the fundamental in your own words.
What impact do Market economies have on people? (p. 54-55 in textbook)ADVANTAGES / DISADVANTAGES
CIRCULAR FLOW MODEL:
Based on the animated model, please fill in the notes below:
What is a circular flow model?
What is the Product Market?
What is the Factor Market?
Please create the circular flow model shown in the animation below:
MIXED ECONOMY- economic system that has elements of traditional, command, and market economies
ANDERSONVILLE PRISON ACTIVITY:
Did your group decide on a Command, Market, or Mix approach to dealing with the scarcity of goods?
Why?
What impact do Mixed economies have on people? (based on the activity in class)ADVANTAGES / DISADVANTAGES
There have been two major trends in modern economies. What are they and what are the impacts of these on the US economy? (p. 61-62 in textbook)
FREE ENTERPRISE/CAPITALISM- anyone is free to start a business or enterprise
PUBLIC SECTOR- the area of the nation’s affairs under governmental rather than private control
PRIVATE-SECTOR- the area of the nation’s affairs under private rather than government control
FREE ENTERPRISE SYSTEM:
Rd. p. 73-75 and answer the following questions:
1. What is the difference between open opportunity and legal equality?
2. What besides profit, if anything, might motivate a person to start a business?
3. What fads like the pet rock have you seen come and go?
4. List and explain the legal rights built into the free enterprise system.
5. Explain the chain of cause-and-effect reactions since the mid-1990’s that led to lower book prices for American consumers.
6. For the section: Your Economic Choices, please fill out the chart below based on the Hamburg area:
In the McKinley Mall / In the plaza by the old Kmart just outside the villageTraffic
Competition
Chance for profit (success)
Look at page 44 in your text book to fill in the graphic organizer below:
RUSSIA: FROM COMMUNISM TO CAPITALISM
What advantages and disadvantages did Russians experience with a command economy?
ADVANTAGES / DISADVANTAGESWith a market economy?
ADVANTAGES / DISADVANTAGESWhen the Communist government fell in Russia, what happened to the factors of production?
What characteristics of a market economy have contributed to the divide between rich and poor?
Will conditions for the poor likely improve or get worse as market economic factors become more firmly established in Russia? Why?
PUBLIC SECTOR- the area of the nation’s affairs under governmental rather than private control
PRIVATE-SECTOR- the area of the nation’s affairs under private rather than government control
THE GOVERNMENT’S ROLE IN THE FREE ENTERPRISE SYSTEM
Look at p. 49 for the following section:
Initially, the US began with a ______policy toward business. This means:
This concept is often paired with ______, an economic system based on ______
______.
Why, in theory, is this supposed to work?
When did this change?
Why?
Look at the circular flow model on p. 80 in your textbook. What is different about this diagram compared to the one we drew on p. 8 in this packet?
How does this new element interact with the circular flow model?
List some goods and services that fall under the public sector:
List some goods and services that fall under the private sector:
On p. 86 in your textbook, look at the section Your Economic Choices and based on the scenario there what would you choose – public wants or private wants and why?
Look at p. 92-93 in your textbook and do the case study answering questions A, B, & C for each document and then questions 1-3 under the Thinking Economically section on p. 93.
SOLE PROPRIETORSHIP- a business owned and controlled by one person
PARTNERSHIP- a business co-owned by two or more people or “partners”, who agree on how responsibilities, profits, and losses should be divided
SOLE PROPRIETORSHIPS AND PARTNERSHIPS
Why do you think Mary Kay Ash proved so successful in her cosmetics venture?
Sole Proprietorships: (p. 228-229)
ADVANTAGES / DISADVANTAGESWhy are sole proprietorships the most common form of business organization in the US?
Partnerships: (p. 234-235)
ADVANTAGES / DISADVANTAGESCORPORATION- a business owned by shareholders, also called stockholders, who own the rights to the company’s profits but face only limited liability for the company’s debts and losses
STOCK MARKET- a particular market where stocks and bonds are traded
STOCK- shares of ownership in a corporation
BOND- a contract a corporation issues that promises to repay borrowed money, plus interest, on a fixed schedule
CORPORATIONS
What do stocks and dividends have to do with corporations?
Corporations: (p. 241-242)
ADVANTAGES / DISADVANTAGESSelecting a Franchise
Select two franchise opportunities that you would consider starting in the HAMBURG, ORCHARD PARK, WEST SENECA area. Answer the questions in the chart about these opportunities based on the information found on the link I give you.
Franchise nameProduct or service
$ needed to start
Number of existing franchises (total US, Canadian, & foreign)
Years franchiser has been in operation
Location of franchise headquarters / #1 / #2
Abilities and interests:
· Is this a business that you think you would enjoy over time?
· Do you have any skills or abilities that can help this franchise succeed?
Consumer Demand
· Is there a demand for the franchisers products in this area?
· Is the demand seasonal? (ex. Dairy Queen only open in warmer months)
· Is there likely to be a continuing demand for the products or services in the future?
Market Competition
· What other businesses in this area would compete with your franchise?
· Are these competing companies well established, with wide name recognition in this area?
· Do they offer the same goods and services at the same or lower price?
Name Recognition
· Is the company’s name widely recognized?
Training and Support Services
· What support does the franchiser provide? (Yes or No)
◊ Site Selection
◊ Building design and construction
◊ Financing
◊ Training
◊ Ongoing supervision and other
management help
◊ Advertising and other marketing
◊ Bulk Purchasing
◊ Other
Which of these franchises would you choose to start near our school? Write one paragraph below telling your choice and citing at least three reasons for your decision.
What is a franchise and how does one operate?
TERMS NEEDED TO PLAY THE STOCK MARKET
1. Dow Jones Industrial Average – ______
· The DJIA is an index of “blue chip” U.S. stocks. It is called an “average” because it originally was computed by adding up stock prices and dividing by the number of stocks. The 30 companies that make up the DJIA are all major players in their industries; these stocks are widely held by individuals and institutional investors. These 30 stocks represent about 1/5 of the $8 trillion-plus market value of all U.S. stocks.
2. Bull Trader – ______
Example: Stock ABC sells for $20 a share
1. You purchase 100 shares of ABC stock, it costs? $______(hint: 100x20)
2. Four months later ABC is now trading for $30 per share. What is the value of your stock? $______(hint: 100x30)
3. If you sold the stock, what would your profit be? $______
Hints to find stocks as a Bull Trader:
1. The stock should have a ______range in its 52-week high and low
2. The stock should be near the ______end of that range
3. The stock should be ______
4. The stock should have a P-E ratio below ______
5. The stock should be trading for less than $______a share
3. Bear Trader – ______
Example: Stock ABC sells for $40 a share
1. You sell 100 shares short. To do this your broker “lends” you 100 shares
2. You would “______” those shares. How much is your investment worth? $______(hint: 100x40)
*Remember you still have not paid for the 100 shares you borrowed!
3. Four months later ABC stock is trading for $20 a share. How much would it cost you to pay for the 100 shares of stock? $______(hint: 100x20)
4. By paying for the stock at a lower price then you “short sold” it for, how much is your profit? $______
*Remember: if the stock price goes up, you will “owe” for the shares you “short
sold” at the higher price.
4. Day Trader – ______
1. Even though this form of trading has become extremely popular with the greater use of the Internet, it is extremely risk!! Some complain that it is as addictive as gambling.
5. Dividend – ______
1. Dividends may be in the form of ______or ______of stock.
Examples:
a. Cash dividend: Base your answers on the IBM stock chart.
1. You own 1000 shares of IBM
2. The current dividend for IBM is $______per share
3. How much would you dividend check be? $______
b. Stock dividend: Base your answers on the IBM stock chart.
1. From #3 above, how much would your dividend check be? $______
2. What is the current price of IBM stock? $______
3. How many shares of stock would you receive? ______
6. Capital Gains – ______
· The most attractive part of capital gains is they are taxed at a much lower rate than income. You only pay the tax when you sell!!
Example: Bill Gates over a three year period made nearly $20 billion in profit on his shares of Microsoft stock. He paid ZERO DOLLARS in tax because he never sold the stock. If he ever sold the stock, he would pay capital gains tax, not income tax on his profits. Dividends are taxed at your income tax rate.
7. Buying on Margin – ______
It is similar to putting something on lay-away. Put a portion down now, pay the rest later!
Example: Margin requirement is 20%
1. You purchase 100 shares of XYZ stock for $200 a share. How much would this investment cost? $______
2. Since you only have to put 20% down, how much cash would you need to buy this stock on margin? $______
3. How much do you still owe on this investment? $______
4. Four months later XYZ stock is trading at $220 a share. If you sold the stock how much would your investment be worth? $______
5. How much was your profit? $______
*Remember: If the stock price drops, you still owe for the value of your initial purchase. The difference between the two numbers will have to come out of your pocket!*
8. Some advice on playing the market:
- Understand the ______/______ratio. The more risk you take, the more money you could earn or lose!
- ______on to stocks as long as you can
- When the market drops dramatically, ______! ______! ______!
- Own stocks in at least ______different industries. TEN is better
- Never invest money that you many need. Invest only ______
- The stock market reacts to the economy. It rarely influences it.
HOW TO READ THE STOCK MARKET