The Fundamentals of Capitalism

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The Fundamentals of Capitalism

• Business Management
• Mrs. Demers

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Bell Work Review Monday, 11/1

1. All resources are _____________________.
2. Utility is ____________________________.
3. The five economic utilities are
   ___________________________________.
4. The four factors of production are
   ___________________________________.
5. The three major types of economic systems are
   ________________________________.
6. The three economic-political systems are
   ___________________________________.

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Standards

• BMS3.11 Explore economic principles related to
  business environment.
• BMS3.11.3 Explain three economic systems
  customer, directed, free enterprise.
•  
• BMS3.24 Discuss the application of economic
  principles to business operations.
• BMS3.24.1 Explain basic economic concepts and
  terminology.
• BMS3.24.2 Describe the characteristics of a free
  enterprise system.

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Learning Target

• Students will be able to
• Describe why private property is important to
  capitalism.
• Describe how prices are set in a capitalistic
  system.

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Key Terms

• Private property
• Profit
• Demand
• Supply
• Competition

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Enduring Understanding

• One of the basic features of capitalism is the
  right to private property, a right reserved by
  the constitution and protected by the government.
  Other key features include the right of each
  business to make a profit, set its own prices, to
  compete, and to determine the wages paid to
  workers.

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Pillars of Capitalism

• Private property rights
• Profit incentive
• Market price system
• Competition
• Labor income distribution system

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Private Property Rights

• The principle of private property is essential to
  capitalism. Private property consists of items
  of value that individuals have the right to
• Own
• Use
• Rent
• Sell

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Profit Motive

• In capitalism, profit is the incentive and reward
  for producing goods and services.
• Calculating Profit
• Total Sales Total Costs Profit or Loss
• The average profit earned by businesses is
  approximately 5 of sales receipts.

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Market Price System

• Demand
• Supply
• Market Clearing Price

Demand
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Market Price SystemDemand

• Demand for a product is the number of products
  that will be bought at a given time and a given
  price.
• Demand only includes individuals willing and able
  to buy.
• An increase in demanders can drive prices up.
• Negative relationship between price and quantity
  demanded.
• Demand is less at higher prices.

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Market Price SystemSupply

• The number of units of a product that will be
  offered for sale at a given point in time and a
  given price.
• A shortage in supply can drive prices up.
• There is a positive relationship between supply
  and price. The quantity supplied is higher at
  higher prices.

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Bell Work Tuesday 11/2

• List 5 pillars/characteristics of capitalism.
• P _ _ _ _ _ _ P _ _ _ _ _ _ _ R _ _ _ _ _
• P _ _ _ _ _ I _ _ _ _ _ _ _ _
• M _ _ _ _ _ P _ _ _ _ S _ _ _ _ _
• C _ _ _ _ _ _ _ _ _ _
• L _ _ _ _ I _ _ _ _ _ D _ _ _ _ _ _ _ _ _ _ _
  System

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Market Price SystemMarket Clearing Price (MCP)

• MCP is the price at which a producer can meet
  costs and make a reasonable profit.
• MCP is the price at which consumers will buy
  enough of the product for the producer to make a
  profit.
• MCP is the price at which supply equals demand.
• MCP is the BEST price for a product at the given
  time.

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Competition

• Sellers try to make a profit.
• Buyers try to buy quality goods at the lowest
  possible prices.
• Competition is the rivalry between sellers for
  consumers dollars.
• Benefits of competition
• Improved quality
• New product development
• Efficient business operations
• Lower prices
• Efficient use of scarce resources

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Types of Competition

• Price Competition
• Trying to compete by charging the lowest price.
• Non-Price Competition
• Trying to compete by offering better quality,
  services, and product features.

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No/Limited Competition

• Monopoly
• The opposite of competition in which only one
  firm is producing the product.
• Leads to high prices and no consumer choice.
• Oligopoly
• Very few competitors control an industry
• Can lead to collusion for high prices, limited
  consumer choice, and strong barrier for new
  businesses to enter the market.

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Income Distribution

• People in the US receive income wages and
  salaries- by contributing their labor to the
  production of goods and services and by earning
  interest on money they lend to others, as rent,
  and as business profit.
• The laws of supply and demand also influence the
  amount individuals receive for wages and salaries.

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Review Questions

1. Is the profit earned by businesses usually over
   or under estimated?
2. What feature of capitalism helps to keep prices
   fair and reasonable?
3. How might a business attract customers from a
   competitor?
4. List three examples of non-price competition.
5. Is the demand high or low for unskilled workers?
   
6. Is the supply of unskilled workers low or high?