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Connecting Economics and Work
Learning Objectives
Define and describe five major components of our economic system Give examples of the relationship between supply and demand and the price of goods and services List several facts that emphasize the importance of individual workers in our economic system Explain government’s role in maintaining a balance between dollars spent for goods and services and the capacity of business to produce them View the world of work as global rather than local

concerned with the way a society uses its productive resources to fulfill the needs (necessities) and wants (luxuries) of each member. The word economics comes from the ancient Greek word oikonomikos, meaning “the management of a household.”

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conomics is the name of the social science

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Enrich Your Vocabulary
In reading this chapter and doing the exercises, you will learn the following important terms: comparative advantage competition consumer demand economics economic system Federal Reserve System free enterprise system gross domestic product industrial products limited resources market opportunity cost profit scarcity services supply technology

Vocabulary You can use the “Developing Your Vocabulary” worksheet in the Chapter 15 file of the Preparing for Career Success Instructor’s CDROM, Third Edition as a pretest or as a reteaching worksheet. Cooperative Learning Assign a group of students to decorate a bulletin board with the title “Economics and Work.”

KEY TO SUCCESS
Understanding our economic system is an important part of understanding the world of work and planning for career success.

Video Tour on DVD Show students the Chapter 15 segment to introduce them to the content. Vocabulary Builder After your students have completed the introduction, have them close their books. Ask several students to use their own words to describe the meaning of the term economic system.

From ancient times to the present, societies all over the world have shared the basic need for food and shelter. From the various Native American cultures to the present time, people on our continent have used an economic process to satisfy this need. The system for producing and distributing food has changed greatly, but it was as much a part of the Native American economic process as it is a part of our present economic process. The condominiums, apartment buildings, and houses of today are very different from the tepees, pueblos, and hogans of early societies, but all of these dwellings satisfy the same human need. All were made available to people by the economic process of their societies. Limited resources (natural resources, labor, capital, and management) prevent people from producing and consuming unlimited quantities of a good or service. For example, the early colonists considered their source of wood to be unlimited. After all, the forests stretched for thousands of miles beyond the first settlements. Today, the shortage of timber in the United States presents our nation with difficult decisions. The unrestricted cutting of timber may result in the loss of a great natural resource. On the other hand, restrictions on the cutting of timber could result in the loss of thousands of jobs in the logging and milling industries. Finding a balance between the consumption, conservation, and recycling of natural resources and the jobs created and maintained by expanding businesses is a major economic concern in the world of work. When people have limited resources compared to their wants, a condition of scarcity exists. All serious economic problems can be traced to a problem of scarcity. It affects us as individuals and as a society. As a result, each of us must make choices concerning the use of our resources to satisfy our wants. The method a society uses to determine how it will use and distribute available resources (resource allocation) is its economic system. The major purpose of an economic system is to provide a process for the production and distribution of goods and services. The economic system of a society represents the input of private, government, and social institutions as well as laws, values, and individual priorities. Individually, these factors influence economic decisions; collectively, they determine the economic system. The U.S. economy is a free enterprise system. In our system, people can own the means of production, use these means as they see fit, and freely create and operate businesses. All consumers, workers, producers, savers, and investors are involved in the decisions of our free enterprise system.

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Many economists refer to the U.S. economy as a capitalist, or market, system. For most purposes, the terms capitalist system, market system, and free enterprise system have the same meaning. Freedom of choice is important in our free enterprise system. However, social and ethical pressure and laws limit the freedoms of consumers and producers. These regulators of free choice occur where the freedom of one individual or group ends and the freedom of another individual or group begins. When matters concerning the public sector are at stake, government In our free enterprise system, large corporations sell shares of their stock to investors frequently intervenes and establishes through a stock exchange. Nationwide, more than 300,000 securities and financial protective regulations. These regula- services sales representatives are employed. Would you enjoy working at this major tions may limit certain areas of free stock exchange? choice, private ownership, competition between businesses, or the right to make unlimited margins of profit. Numerous government agencies carry out the government’s role in the economy. Government regulation of our free enterprise system Reduces the fluctuations (continual changes) between good times and bad times Promotes the growth of businesses and the number of jobs in our society Ensures fair competition between businesses Provides programs of importance to all people, such as transportation, national defense, and public education Takes care of the minimum basic needs of adults and children who are victims of unemployment or other unfortunate circumstances The government usually places controls on a private business or industry that makes use of public resources or provides a service that is essential to the public good. More than ever before, the American public is concerned about economic questions such as What should be produced and who should produce it? How should it be produced and for whom should it be produced? What effect will production have on our environment? Developing a basic understanding of our economic system will help you achieve your career goals. It will also help you make wise decisions in your role as consumer and citizen. These decisions will benefit you individually and society as a whole.
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Reteaching Have students complete the “Regulation Pluses” worksheet in Chapter 15 of the Preparing for Career Success Instructor’s CD-ROM, Third Edition.

TA K E N O T E
Wants rather than needs frequently determine how resources are used, yet natural resources are limited. If a business uses a natural resource to produce a product, that resource may not be available for another product. For these reasons, conservation and recycling of resources are important considerations for all businesses.

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Section 1: Production and Service Systems
Comprehension Check Send two writers to the chalkboard. Instruct one writer to make a heading titled “Goods” and the other to make a heading titled “Services.” Ask several students to name one consumer product or service for the writers to list. Next, ask your students: What is the difference between a consumer product and an industrial product? between a consumer service and an industrial service?

Figure 15.1 Projected growth of serviceproducing and goods-producing sectors.

atisfying the changing demand for goods and services is the goal of economic activity. Every time a new idea is turned into a product or a service and a business is formed to produce the product or provide the service, jobs are created for workers, and the opportunity to earn profits is created for employers. The purpose of a production system is to produce goods (items that can be physically weighed or measured) to sell to others. Industrial products are goods that are produced for and sold to other producers. For example, a factory may produce only synthetic fibers (plastic threads such as nylon or polyester). These synthetic fibers are industrial products sold to companies that manufacture carpets, clothing, or tires. Products sold to consumers and used for personal, family, or household use are consumer goods. What consumer goods have you used this week? What industrial products were used to manufacture those consumer goods? The purpose of a service system is to provide services (tasks that other people or machines perform that cannot be physically weighed or measured) to consumers or other businesses. Businesses use industrial services. Companies that sell these services include accounting firms, trucking companies, and architectural firms. Individuals use the services of a physician, beauty shop, or repair shop; these are consumer services. What services do both businesses and consumers use? The sector of our free enterprise system that provides services is growing at a much faster rate than the sector that produces goods. In fact, the service sector will account for about four out of every five jobs by the year 2016 (see Figure 15.1).

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The Profit Motive
Enrichment Have students complete “The United States—A Global Production System” worksheet in Chapter 15 of the Preparing for Career Success Student Activity Book, Third Edition.

Profit is the major motivator of every business. Businesses of all types and sizes desire to make a profit (money that is left over after all of the expenses are paid). Profit is necessary for the creation of new jobs, the training of workers, and the cleanup of industrial pollution. Without profit, companies go out of business, jobs are lost, and office buildings and factories decay. Responsible, efficient, profitable companies are the foundation of a healthy free enterprise system.

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In both good times and bad times, investors purchase shares of stock in the hopes of making a profit. Depending on the type of stock, stockholders are entitled to certain shares of the profits and permitted to vote on certain corporate matters. Most people think of stockholders (owners of stock) as wealthy, yet most stockholders are ordinary people. In fact, more than 80 million individuals own stocks (ownership shares in a corporation). How would you like to own part of a business with the opportunity to make a profit?

Discussion Starter Ask your students: Have you ever heard someone criticize a company for making a profit?

Marketing Goods and Services

Enrichment

Have students complete “The United A market is a group of people or organizations that purchase a particuStates—A Global Service System” lar good or service. If you purchased a pair of shoes in the past year, you are worksheet in Chapter 15 of the part of the shoe market. The U.S. Army purchased several thousand pairs of Preparing for Career Success shoes last year. It is probably the biggest organization in the shoe market. Student Activity Book, Third Edition. What other markets involve you? Before new companies are formed, or established companies expand their production, they conduct market research (collecting and using information to link the marketer to the marketplace) and determine the market demand (what consumers want to buy). Market research tells the organization which consumers are most likely to buy their product or service. These consumers make up the organization’s target market. Examples of target markets are small children who watch cereal or toy commercials on TV and senior citizens who read ads for health products. What are some of the products or services that have targeted the teenage market? In our free enterprise system, numerous companies compete for Companies use information provided by market research analysts to make decisions business in their market. Each com- about their products and services. pany strives for a certain market share (a percentage of sales in a market). Frequently, one company is the leader in its market. Who is the current leader in the shoe market, the cereal marEnrichment ket, and the entertainment market? What might cause a leader’s market Assign your students to clip pictures share to rise or fall? from ads in newspapers and magazines that market specific goods or services. Include pictures of workers. Then have students post the ads on the “Economics and Work” bulletin board under a heading of “Goods” or “Services.”

Solving the Problem: Investment Creates Jobs
Fran Gomez graduated from an 18-month technical school in 2001 with a major in drafting technology. She received similar job offers from the R. W. Anderson Corporation, a manufacturer of industrial machinery, and
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TA K E N O T E
Inventions such as the transistor in 1947 and the microprocessor in 1971 led to the creation of the world’s first personal computer (PC) in 1975 by Ed Roberts. Next, Apple and IBM introduced their first versions of the personal computer. From that time forward, computers have evolved rapidly, with new technologies reducing size and cost while increasing memory and processing power. Computers have had an enormous impact on society, providing tremendous technological possibilities and opportunities throughout the economy.

TA K E N O T E
The Technology Student Association is a nationwide organization that helps middle school and high school students explore careers in science, technology, and engineering. Through activities such as designing a house or developing a video game, students build their technical skills and gain experience in teamwork, communication, and leadership. Contact a local chapter or visit www.tsaweb.org on the Internet to find out more about this career and technical student organization.

SNC Plastic Products, a manufacturer of plastic kitchen products. Fran wanted to work for a stable, growing company that offered the opportunity for career growth. She looked forward to buying a home, having a family, and being a member of the community. Before accepting a job with either company, Fran checked the profits and growth of each company for the 10 previous years. At R. W. Anderson, the number of employees had grown very little, but the company had much higher profits than SNC Plastics. The Anderson family owned the R. W. Anderson Corporation, and they were a very wealthy family. SNC hired new employees each year, and it borrowed money from banks to expand its business. Fran decided that R. W. Anderson would be her best choice. It was the town’s largest employer, owned by local people, and had no outstanding debts. Eight years later, in 2009, Fran’s life dreams were coming true. Anderson had promoted Fran to senior design technician. She and her husband had purchased a small home and were expecting their first child in August. Six weeks before the baby was born, all of Fran’s dreams exploded when R. W. Anderson announced that it was closing its factory in two weeks. Fran learned an important economic lesson the hard way. Some companies make high profits year after year instead of investing money in new equipment and technology to keep factories and offices modernized or developing new products for growing markets. Eventually, the market for the products they have made year after year shrinks or disappears. The result is that they are unable to compete with modern factories, and they cannot afford the cost of modernization.

Critical Thinking
What should Fran have been looking for during her eight years of employment with R. W. Anderson to foresee the closing of the company?

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What criteria can employers use to figure out how much of their profits to invest each year in developing new products or services, expanding their markets, buying new equipment, updating their buildings, and training their employees? In what way was R. W. Anderson an irresponsible business?

There is nothing permanent except change. —Heracleitus

Factors of Production
As a business strives to make a profit, it must give up certain resources or benefits to produce a particular product or to provide a particular service. Resources or benefits given up by the business are opportunity cost. For example, an automobile company may have to choose between developing and producing a new sports car or a new van if it cannot afford to develop and produce both. The decision to produce a new van has the opportunity cost of not producing a new sports car. Suppose a small business must choose to either hire an additional salesperson or modernize its office equipment. If the business chooses to modernize its office equipment, what opportunity cost will it pay? Companies must continually decide what opportunity costs they should pay.

Comprehension Check/Vocabulary Builder Instruct your students to close their books. Then ask several students: In your own words, explain the meaning of the term opportunity cost.

Distribution Systems
A production system cannot operate without a distribution system (steps involved in bringing products and services from their point of origin to the consumer). For example, every day you use toothpaste that may have been produced hundreds of miles from your home. Fortunately, drugstores are located throughout the nation to sell toothpaste. Without a transportation system, such as trucking or railroads, the toothpaste would not be available in your local drugstore. A labor force of engineers, machine operators, packaging experts, truck drivers, railroad workers, engine mechanics, construction workers, store managers, retail clerks, and hundreds of other workers are involved in making certain that you can purchase toothpaste at your local drugstore. To understand the distribution of goods, see Figure 15.2.

Enrichment Explain to your students that distribution systems are paths that goods and services follow from the producer to the consumer. Ask several students: Name a familiar product or service used by your family, and describe the distribution system it follows.

Figure 15.2 Distribution of goods.

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Services are usually much easier to distribute than goods. For example, a dentist, beautician, or appliance repairperson may simply rent an office or shop and hire someone to schedule appointments. Likewise, large furniture, automobile, or appliance dealers may make repairs on their premises.

Section 1: Get Involved
One major corporation, Hyatt Hotels, developed a once-a-year training day called In-Touch Day. On this training day, corporate headquarters is closed, and everyone—from top executives to office secretaries—spends the day working at a rank-and-file job in one of the corporation’s hotels. Answer the following questions related to this type of training, and be prepared to discuss your responses in class. 1. How would this type of work experience help executives and managers understand the total operation of their organizations? 2. How would this experience help managers understand their employees and customers and the problems that their organization needs to solve? 3. What message do machine operators in a factory receive when a vice president spends the day learning and doing job tasks with them? 4. What message does a vice president receive when he or she is unable to effectively perform the work tasks of a rank-and-file employee? 5. What would corporate workers and rank-and-file employees learn by talking and working together for one day as a team? 6. What effect would this experience have on making the organization cohesive and profitable?

Section 2: Producers and Consumers
TA K E N O T E
As far back as 2000 B.C., people used gold as money. It was scarce, desirable, and perfectly acceptable for buying goods or services or for paying debts. During the seventeenth and eighteenth centuries A.D., wealthy people deposited their gold with local goldsmiths for safekeeping. The goldsmiths provided a paper receipt for the money deposited with them. Years later, the receipts began to be traded for goods or services because of the gold that they represented. This was the beginning of paper money.

onsumers and producers are interconnected in our market economy. Consumers want to purchase as much as possible from producers at the lowest possible price. In turn, producers want to sell their products or services and make as much profit as possible.

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Consumers in a Market Economy
The real “boss” in the free enterprise system is you—the consumer (a person or group that buys or uses goods or services to satisfy personal needs and wants). Every time you buy a product or service, you are telling the market to supply more of that product. When you and other consumers stop buying a product or service, the merchant must sell something else or go out of business. This interaction between consumers and producers helps determine how much will be produced. Figure 15.3 illustrates the importance of consumption as money flows between producers and consumers. Most consumers determine the share of goods and services they will consume by the size of their income. When the personal income of the average consumer increases, his or her level of consumption also increases. When personal income decreases, the level of consumption decreases. When a great number of people are unemployed, the amount of goods and services produced will decrease, and jobs will be lost.
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Consumers spend their money on different types of goods: Durable goods are useful for a very long time. Automobiles, television sets, clothing, and home appliances are examples of durable goods. When times are bad, consumers can postpone replacing these items. What durable goods do you own? Which ones would you like to replace? Nondurable goods require continual replacement. Toothpaste, gasoline, and food items are examples of nondurable goods. What nondurable goods have you used this week? Necessity goods are essential for everyday life. Food, clothing, shelter, and medical care are examples of necessity goods. What was the most expensive necessity good you used this week? Luxury goods are not essential for everyday life. Diamond rings, filet mignon, and compact discs are examples of luxury goods. What luxury goods would you like to have? In Chapter 18, you will learn methods to help you become a prudent consumer in our free enterprise system.
Figure 15.3 Money flowing between producers and consumers.

Supply, Demand, and Price
The willingness of consumers to buy goods or services at a certain price in the marketplace is a demand. Supply is the willingness of producers to produce and sell goods or services at a certain price in the marketplace. The monetary value (dollar amount) placed on goods or services in the marketplace is the price. Changes in supply and demand influence prices in the marketplace. For example, wheat is the major raw material used to produce bread. Imagine that you are a Nebraska wheat farmer. Perfect weather conditions have resulted in a wheat crop that is twice your average annual yield. You are delighted because now you have twice the amount of wheat you normally sell (the supply). However, people do not plan to buy any more bread than usual (the demand). Other farmers also have had a bumper crop to sell. You suddenly have a great deal of competition for selling wheat in the marketplace (oversupply). With twice the normal amount of wheat available in the market and a demand for only half of it, what will happen to the price of your wheat? It will go down, of course. When the supply of a product or service is greater than the demand, the price goes down. What would have happened to the price of your wheat if the demand for it were greater than the quantity harvested?
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Comprehensive Check/ Vocabulary Builder After your students have finished reading “Supply, Demand, and Price,” ask several students to respond to this statement: In your own words, describe the meaning of the economic terms supply and demand.

C A R E E R FA C T
When producers and consumers are confident that their government has gold and silver to support the money, the value of the money is strengthened.

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Competition (striving against

Competition for the consumer’s business exists on every busy street in America.

Community Resources Form a committee to obtain additional information about monopolies from the Federal Trade Commission. Have the committee report the information to the class.

FIND OUT MORE
For more information about monopolies, key in Federal Trade Commission on your Internet search engine.

others to win something) plays a key role in establishing the prices of products and services. In our market economy, competition occurs when a business or service strives to win customers by offering lower prices or better quality than its competitors offer. Competition exists when there are many buyers and sellers of a certain product or service. McDonald’s, Wendy’s, and Burger King are big competitors in the fast-food industry. Can you remember a time when one of these fast-food restaurants offered lower prices or better quality to attract customers? When a business obtains complete control of the supply or demand (most often the supply) of a good or service, it becomes a monopoly. The business price of the monopoly’s goods or service increases to more than the real value. It represents the controlled conditions of supply and demand. Imagine a situation in which one company controls the production and supply of all the automobile tires in the United States. This single company can demand the highest possible price that consumers can afford for tires. There would be no competition to keep prices down. In this case, consumers would have two choices: buy the tires at the market price or do not operate their automobiles. The government regulates fair competition between businesses through numerous antitrust laws. These laws prohibit attempts by businesses to monopolize or dominate a particular market. Antitrust laws are necessary to ensure the growth of businesses and the number of jobs in our society. They are especially important to small and new business owners because without the assurance of fair competition between businesses, they could not survive.

Section 2: Get Involved
Answer the following on a separate sheet of paper, and be prepared to discuss your responses in class. 1. Interview an automobile mechanic or car salesperson with 10 or more years of experience. Ask the following questions: What effect did the importing of automobiles from foreign countries have on competition in the United States? What effect did it have on the quality of U.S. cars? What about the effect on size, fuel efficiency, and price? Why? 2. A major purpose of advertising is to increase the demand for a product or service and to get consumers to buy it. Choose a product or service, and find at least four ads describing it. Are the ads truthful? Do they make you want to buy the product or service? What groups of people will be attracted by the advertising? Why?

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Section 3: Our Monetary System

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arly settlers on the American frontier had little need for money. Instead, they exchanged goods or services for other goods or services. This system of exchange is called bartering. In the early 1900s, it was common for a rural physician to accept a supply of eggs, a couple of chickens, or even a pig in exchange for medical services. Governments eventually began to print and issue paper money that was supported or could be exchanged for gold. In 1934, the U.S. government called in all gold coins and certificates and stopped redeeming paper money in gold. This enabled the government to vary the amount of money in circulation to meet both domestic and international needs. Paper money, no longer redeemable in gold, continues to circulate as freely as ever. We have come to believe that our monetary authorities, even without the old-time discipline of gold at home, will not destroy the purchasing power of the dollar by printing and circulating too much money. Money itself has little value. The value of money exists only in the value of goods and services that it represents. The federal government uses two methods to regulate and influence the economy to maintain a balance between the total dollar amount spent by individuals, households, businesses, and governments for goods and services and the growing capacity of business to produce goods and services. Fiscal policy is the use of the federal government’s taxing, borrowing, and spending powers to counteract ups (periods of inflation) or downs (periods of recession) in the economy. When the government acts to put more money in consumers’ hands, the demand for goods and services increases, more jobs are created, and the economy moves toward an up cycle—a period of inflation. The federal government is the biggest consumer in our economy. Imagine the thousands of jobs created by the government when it buys a new fleet of airplanes, ships, or tanks; builds a new interstate highway; or gives money to state and local governments to build bridges or sewer and water systems. The government can also increase consumers’ ability to buy goods and services by reducing taxes. In addition, the government can increase the money it pays consumers in the form of Social Security checks or pensions. These are transfer payments. On the other hand, when the government reduces spending on goods or services, increases taxes, or reduces the money it spends on transfer payments, the economy moves toward a down cycle—a period of recession. Balancing the economy is a lot like flying an airplane. The pilot (the federal government) makes small adjustments to go up or down in response to changing pressures. Making large, sudden adjustments in either direction could result in a serious crash. The second method the federal government uses to influence the economy is its monetary policy. The Federal Reserve System, a network of 12 regional banks, regulates banking in the United States. The Federal Reserve System increases or decreases the amount of money in our economy by
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Comprehension Check After your students have completed this section, ask them to close their books. Ask several students to answer the following question in their own words: What is the true value of money? (Answer: The value of the goods and services it represents.) Cooperative Learning Have students complete the “New Money” worksheet in Chapter 15 of the Preparing for Career Success Instructor’s CD-ROM, Third Edition.

C A R E E R FA C T
By law, the Federal Reserve cannot create paper money and bank reserves in excess of four times the value of gold held by the Treasury in Fort Knox and elsewhere. The reason for connecting the dollar to gold is to ensure that the buying power of the dollar, relative to that of other currencies, remains stable. Because all nations still desire and will accept gold, it is international money. Many countries, including the United States, pay their debts to one another by transferring gold.

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Community Resources Form a committee of students to contact a local bank or savings and loan. Ask them to invite a vice president or a loan officer to speak to your class about the Federal Reserve System.

Are you interested in a banking career? The banking industry employs more than 546,000 tellers, 133,000 loan officers, and 73,000 financial managers.

printing more money or removing money from circulation. The Federal Reserve System not only regulates the amount of money flowing through the economy, but it also sets the interest rate it charges commercial banks. In turn, the commercial banks respond to the interest rates they must pay the Federal Reserve banks by lowering or raising interest rates to individual consumers or businesses. If you owned a business and wanted to buy new machinery or build a new building, would you be more likely to expand when interest rates were high or low? What effect does business expansion have on employment? When individuals or businesses need to borrow money, they go to a commercial (privately owned) bank. When commercial banks need money, they go to a Federal Reserve bank (owned by the federal government). Individuals or businesses make most purchases or payments with money or checks. Checks are not money, but they represent money and are widely accepted as a form of money. The banking system can increase the supply of money in the economy by making loans to individuals, businesses, or the government. In turn, making loans increases spending power and the demand for goods and services. What effect would this have on employment? When you deposit your money in most banks, it is insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC is a government agency that protects small depositors against the failure of an insured bank or savings and loan institution. Before you open an account with a bank, be certain that you see the initials FDIC on its signs. The FDIC safeguards deposits up to $100,000 in each account.

Section 3: Get Involved
Answer the following on a separate sheet of paper, and be prepared to discuss your responses in class. 1. If our society operated without money, what could you or your family barter to obtain food, shelter, transportation, and clothing? Why did bartering work on the American frontier? What conditions have changed to make bartering almost impossible in our society? 2. How would an individual or a group of people start a business if there were no banks? What effect would this have on starting or expanding a business? What effect would this have on the number and variety of jobs available in our society?

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Section 4: Good Times and Bad Times

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ike the pendulum on a clock, our economy swings between periods of “good times” and “bad times.” These continual economic changes between prosperity and recession make up the business cycle. During periods of good times and business peaks, economic activity reaches its highest point in the business cycle. Prosperity is evident as businesses produce goods and services at full capacity. At this point, new businesses are started, and the number of unemployed workers is low. Bad times range from mild recessions (when the nation’s output does not grow for at least six months) to severe depressions (when the business cycle is marked by high unemployment, numerous businesses fail, and the economy operates far below capacity), such as the Great Depression that lasted from 1929 to 1941. During bad times in the business cycle, declining industries lay off thousands of workers. The business cycle affects and is affected by the production and distribution of goods and services; the earning and spending of wages by workers; the number of workers who are unemployed; the trading of goods and services with other nations; and the price of stocks, bonds, and commodities. During the past 50 years, several safeguards built into our economy have helped protect business owners and workers alike from large swings in the business cycle: Workers receive some protection from bad times by unemployment insurance benefits. Investors receive some protection from sharp declines in business profits by corporate policies that attempt to keep dividend payments more stable than corporate profits. The federal government’s fiscal and monetary policies regulate the rates of interest paid by businesses or individuals when borrowing money. These policies also determine the amount and types of taxes to be paid and the allowed tax exemptions. Lowering interest rates to encourage spending by individuals and businesses is an easy-money policy. During periods of easy money (low interest rates), businesses tend to invest in items such as new equipment and buildings. A major result of this investment is an increase in the number of jobs. On the other hand, the strategy of decreasing the amount of money in the economy and increasing the rate of interest for loans is called a tight-money policy. Tight money pushes the economy in the direction of less borrowing, less purchasing of goods and services, fewer jobs, and recession.

Cooperative Learning Divide your class into learning pairs. Allow 10 minutes for each pair to write their answers to these questions: During good times, would you rather be a worker in a small business or the owner? Why? During bad times, would you rather be a worker in a small business or the owner? Why? Ask each pair to read their answers to the class.

Discussion Starter Experiencing the Great Depression influenced the career choices and the buying and saving habits of the World War II generation. Ask your students how they have been influenced by good times or bad times.

KEY TO SUCCESS
Successful workers take advantage of every opportunity to learn about new technology in their selected occupations.

Comprehension Check Instruct your students to close their books. Ask several students: In your own words, explain the economic terms easy-money policy and tightmoney policy.

The gross domestic product (GDP) is the total value of goods and services that a nation produces for the marketplace during a specific period of time (usually a single year). Figure 15.4 illustrates this concept.

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Figure 15.4 Gross domestic product.

The GDP is projected to grow at an annual rate of 3.9 percent from 2004 to 2014. In terms of dollars, it is projected to grow from $10,756,000,000 in 2004 to 14,650,000,000 in 2014. This steady growth in the demand for goods and services is largely due to continually accelerating productivity. When the average price of goods and services increases over a prolonged time, the economy is in a period of inflation. During periods of inflation, the consumer demand for goods and services is greater than the quantity of goods and services available. Do you remember the law of supply and demand? The increase in consumer demand plus the limited amount of goods and services available cause prices to rise. As the price of most goods and services increases, the dollar buys less. You have probably heard older people complain that the dollar is not worth as much as it used to be. What they sometimes forget is that their labor is worth more than it used to be. As a result, they have more dollars to buy goods and services. Statistics that forecast good times and bad times for the economy are leading economic indicators. The index of leading indicators includes these 11 key statistics: Percentage of firms getting delayed deliveries Prices of 500 common stocks Average number of hours manufacturing employees work per week Consumer expectations of economy’s health Monthly average of the real money supply Weekly claims on unemployment insurance Monthly total of building permits issued Number of contracts and orders for new plants and equipment Orders for manufactured consumer goods and materials Change in sensitive materials (commodities) prices

Enrichment/Cooperative Learning Divide your class into groups of three or four. Assign an economic indicator from the list to each group. Instruct each group to write answers for the following questions: Why would a change in this particular leading economic indicator signify a change in the economy? What change in this indicator would signify a change toward good times? Toward bad times? Have each group report their conclusions.

C A R E E R FA C T
If a member of your family had invested $100 in Microsoft Corporation in 1986 when it premiered, his or her stock would be worth more than $2.5 million today.

Change in manufacturers’ unfilled orders for durable goods A recession is indicated when statistics show these factors to be declining. On the other hand, increases in these indicators predict a period of inflation. Modest upward or downward movements in a well-balanced economy indicate good times, whereas sharp, prolonged increases or decreases can spell bad times for the economy.

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Section 4: Get Involved
Interview a family member or friend with 10 or more years of work experience. Ask this person the following questions, write down his or her responses on a separate sheet of paper, and be prepared to discuss your findings in class: 1. How were you affected by periods of inflation and recession during the past 10 years? 2. What rate of inflation would you consider acceptable for our economy? Why?

Section 5: Technology and Change

T

echnology (the science of mechanical and industrial arts) is the

foundation of change in today’s world of work. It determines the ability of our nation and its workers to compete and prosper in local, regional, and world markets. The use of technology satisfies an ever-growing demand for goods and services in our country and from our overseas trading partners. Today’s technical breakthroughs are tomorrow’s routine products. Think about the changes you have witnessed in your lifetime with new or improved tools, transportation, medical treatment, energy resources, fabrics, construction materials, computer applications, and agriculture. Many of those products were very expensive 10 or 20 years ago but are common today. Technology usually changes in small steps based on past knowledge and scientific breakthroughs. Computer chips, nuclear energy, television, transistors, and semiconductors are examples of scientific breakthroughs. Each of these technical developments eventually opened the door for millions of jobs worldwide.

Discussion Starter Explain to your students that technology is like a steel ball rolling downhill. Due to its own energy, the further it rolls, the faster it rolls. New technology increases the availability and demand for newer technology. Ask your students: During the past five years, what new technology has made your life less complicated? More complicated? More enjoyable? Less enjoyable? Explain your answers. Enrichment Explain to your class that technological advances sponsored by government spending during times of war or national crisis (the space program) frequently result in new services and products for consumers. Send a writer to the chalkboard to make a list of such services and products. Ask your class to identify goods and services for the writer.

Computers: Technical Giants
Computers may be the most profound technology since steam power ignited the Industrial Revolution. Computing power that once cost millions of dollars now costs hundreds. This incredible decrease in cost and increase in computing power is a result of extraordinary advances in the manufacture of microprocessors. Computer technology is altering the form, nature, and future course of the American economy by Creating entirely new organizations, products, services, and markets Increasing the flow of products to consumers Launching an information highway to global product and financial markets Increasing worker efficiency Changing the composition (type of occupations) and geographical distribution of labor

C A R E E R FA C T
The Internet is changing the economics of transactions, benefiting both consumers and producers. Business-to-business e-commerce and consumers’ online spending are surging. E-retail sales account for nearly $200 billion a year. Close to half (47 percent) of all adult Americans have a high-speed Internet connection at home (source: U.S. Department of Commerce, 2007).

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Comprehension Check Instruct your students to close their books. Ask several students: Describe an example of how technology has increased the production of workers in a specific occupation.

As new technology creates changes at a dizzying pace, the skill requirements for jobs become more sophisticated. To produce the maximum number of high-quality products or services, employees will need to maintain and develop the skills necessary to use these new technologies. Investing in advanced technology; improving current products, processes, and services; and creating entirely new ones are essential for the United States to improve its productivity and competitiveness. Newly automated businesses must deal with worker issues that result from the use of new technology. These issues include employment security, training for new skills, changes in work organization, and a need for teamwork.

Increased Productivity
Productivity is the amount of goods or services that a worker produces Discussion Starter in a certain time (usually an hour). Improving the technology of tools and What is another area of production machines increases worker productivity. A hundred years ago, thousands of in which advanced technology has American farmers produced corn. A farmer with a good team of horses increased the quality and quantity of could plow about two acres of land each day. Using horses to pull metal a product or service? plows, disks, and seeders, each farmer could prepare, plant, cultivate, and harvest about 30 acres of land each year, producing about 50 bushels of corn per acre. A single farmer produced far more corn per year than was produced by all of the workers in the earlier Indian village. Today, a much smaller workforce of farmers, equipped with giant airconditioned tractors, not only produces a much larger harvest of corn than their counterparts of 100 years ago, but in one hour can harvest 900 bushels. The difference in these three periods of corn production results from the technology available to the workers. Which farmer worked the hardest? Which had the least product Farmers, ranchers, and agricultural managers held about 258,000 jobs in 2006. Most manage crop production activities, while others manage livestock production. The trend to show for his or her labor? continues toward fewer and larger farms. Just as consumers expect highquality goods or services for the dollars they spend, employers expect high-quality production for the dollars Education and Training/ they spend on wages. As workers have produced more goods or services per Cooperative Learning day, employers have reduced the number of hours in the workweek. For Divide your class into learning pairs. example, a 60-hour workweek was common in 1850, but since 1950, a 40Allow five minutes for each pair to list hour week is typical. Still, the average American worker’s standard of livchanges in the education and training, measured in purchasing power, has increased dramatically. ing requirements for one specific occupation during the past 100 or more years. Allow time for each pair to report their answer to the class.

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Occupational Specialization
One hundred and fifty years ago, more than 90 percent of the workforce was involved in agriculture. At that time, families were largely independent, producing most of their own food and clothing and frequently building their own homes. There were few specialists in the workforce. Today, less than 2 percent of the workforce is involved in agriculture, and more than 99 percent of U.S. families are interdependent: They produce goods or provide services for others, and they use their earnings to purchase necessities and luxuries. With few exceptions, today’s workers are specialists. Occupational specialization occurs when a worker focuses on producing one particular item of goods or providing one particular service. It is the foundation of all modern economic systems. Through specialization, our nation is able to produce a higher volume of goods or services at a lower cost than would otherwise be possible. In turn, specialists use their wages to purchase goods and services from other specialists at a lower cost. The efficiency that results from specialization enables all members of the workforce to have a higher standard of living. Figure 15.5 demonstrates the high degree of interdependence among workers and businesses in the U.S. economy. Notice how money flows in a cycle through our economic system. Specialization may be regional. Regional specialization occurs when producers use specific natural resources in a geographic region. Potatoes from Idaho, wine from California, peaches from Georgia, and cheese from Wisconsin are examples of regional specialization. What specialization takes place in your region of the country? What natural resources or other factors have influenced specialization? What occupations are in demand because of this specialization? When certain geographic regions or nations are able to produce more of a certain product or provide more of a certain service at a better price than others because of the efficiency they gain from specialization, they have a comparative advantage over competing regions or nations. A comparative advantage is the ability of a producer to provide a good or service at a lower opportunity cost than other producers. For example, the nations of Southeast Asia have a comparative advantage over most of the world in their ability to produce natural rubber, largely due to the region’s climate. By specializing in a product in which they have a comparative advantage, the nations of Southeast Asia are able to sell natural rubber on the world market. They use the money they receive to purchase other goods and services from other nations.
Cross-Reference See the vocabulary term interdependence in “Section 1: Having a Positive Attitude,” in Chapter 10.

Figure 15.5 The interdependence of workers in a specialized economy.

C LU S T E R L I N K
Communications and media technology are an important part of every American business. If you are interested in writing articles, designing print materials, or making commercials, you should explore the Arts, A/V Technology, and Communications career cluster. See the appendix for more information.

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Another example of comparative advantage is our nation’s real manufacturing output as a percentage of real gross national product. Our GDP has been increasing, while manufacturing employment as a percentage of total payroll employment has been declining. This demonstrates that today fewer workers are producing more goods. What effect does this increased output have on employment opportunities in the United States? What effect does it have in your community?

Section 5: Get Involved
Answer the following on a separate sheet of paper, and be prepared to discuss your responses in class. 1. Occupational specialization affects workers worldwide. Workers use money earned from the sale of their specialty products to foreign nations to purchase goods that workers in other nations can produce at lower costs. List imported goods or services used in your region. Make another list of goods or services produced in your region and exported to other nations. Does your region export more than it imports? If so, the balance of trade is in your region’s favor. Make another list of specific jobs gained or lost in your region due to the balance of trade with other nations. 2. Television was a major technical development of the twentieth century. How much time have you spent in the past week watching TV? How would you have used this time if television were not available? Without TV, what jobs would be lost in the world of work? What industries would benefit? Ask older friends or relatives about industries that prospered before television.

Discussion Starter Ask your students: Is it an advantage or disadvantage for American workers to have low-wage, labor-intensive jobs shifted to newly industrialized countries in Latin America, East Asia, and the Caribbean? Explain the reasons for your answer.

Section 6: A Global Economy

O

ne of the most significant features of the world of work you are preparing to enter is the growing internationalization of the U.S. economy. Consider these facts:

TA K E N O T E
The international world of business is tied together by instant information. Money used to purchase goods or build a new business moves globally in a matter of keystrokes. The major countries of Western Europe now use a common currency (the Euro) for international trade. Increasingly, the tendency of the world is to act as one market instead of a series of national ones. The Internet minimizes factors such as communication and distance. This allows small, local businesses to compete globally with large companies.

Census figures tell us that less than 5 percent of the world’s population lives in the United States. This means that about 95 percent of the customers buying goods in the world economy live outside the United States. The world’s wealth is concentrated in North America, Europe, Japan, Australia, and New Zealand. These countries can afford what the United States has to sell. South of the U.S. border, trading partners from Mexico to Argentina are rapidly growing in importance. Nations are removing the political, economic, and social walls that divide them. As a result, goods, services, information, and technology are traded in a global market. U.S. companies frequently form partnerships with companies from other nations. The combined technology and resources of these mergers enable both partners to gain a much larger share of the world market.

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The business of many companies is global. Businesses conduct production or marketing operations in several nations or through branches or subsidiaries in which they have an important interest. When a business either purchases or creates another business in another nation, it is direct investment. Offshore businesses developed by Americans vary widely. Many traditional high-volume, standardized production systems and lowwage, labor-intensive production systems have shifted to newly industrialized countries in Latin America, East Asia, and the Caribbean. The competitive advantage of U.S. companies is sophisticated, technology-driven, precision-engineered, and custom-tailored commodities or products, manufactured with rapidly changing technology.

KEY TO SUCCESS
Learn as much as possible about America’s economic system. The success or failure of American business in the global market will affect your career success.

The global economy is here. The question is no longer “Will the United States be involved in the global economy?” but rather “What must the United States do to be a successful participant in the global economy?” Government involvement, different monetary systems, and international borders pose problems that nations must negotiate before they become trading partners. Some governments fear losing technology to other countries, and workers fear the loss of jobs to other nations. Inflation, recession, and economic growth are also international concerns because the success or failure of one world Are you prepared to participate in the global economy? trading partner affects all of the others. For example, imagine the economic effect on Japan if the United States had a recession and no one could afford to buy a new car. What would happen to the United States if foreign aircraft technology improved greatly and the world stopped buying U.S. aircraft? Discussion Starter Trade agreements such as the North American Free Trade Agreement Ask your students: Do you know a (NAFTA) and the General Agreement of Tariffs and Trade (GATT) help worker who lost his or her job because of the global economy? trading partners resolve problems and encourage trade. Although these Explain the situation. agreements do not resolve all trade problems, they do provide a framework for negotiation between trading partners. To better understand this issue, consider the United States’ trade relationship with China. Low wages, government subsidies, and questionable trade practices allow China to produce and ship goods to America’s shores—sometimes more cheaply than U.S. manufacturers pay for raw materials. Table 15.1 lists facts about U.S. trade with China.
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TA K E N O T E
Auburn University has been using body-scan medical technology to perfect the fit of clothing. Knowing how to fit the U.S. population better should boost sales of the U.S. clothing industry. American textile companies have been losing jobs for several years.

Table 15.1 China Trade Facts
U.S. imports from China U.S. exports to China U.S. trade deficit China’s share of U.S. imports China’s share of the U.S. trade deficit
Source: U.S. Department of Commerce (data from 2006)

$288 billion $55 billion $233 billion 16% 38%

As you prepare to enter the workforce, you need to recognize that competition from abroad is exerting as much influence on the quantity and quality of your job choices as is competition from within the U.S. economy. As a citizen and worker affected by the global economy, you should become familiar with terms commonly used by international trading partners: Direct investment occurs when a business either purchases or creates a business in another nation. Imports are goods and services purchased from another nation. The United States imports oil, automobiles, coffee, bananas, tea, silk, natural rubber, and electronic appliances. Many imports are essential to the welfare of a nation’s citizens. Exports are goods and services sold to another nation. The United States exports airplanes, chemicals, paper, scrap iron and steel, and electronic equipment. Shiploads of U.S. wheat and corn cross the oceans. The latest Hollywood movies, Coca-Cola, and McDonald’s fast-food restaurants are found around the globe. Exports provide employment opportunities for many workers. The exchange rate is the price at which a nation’s currency can be bought or sold for another nation’s currency. (See a recent copy of the Wall Street Journal for the current rate of exchange.) A trade quota is a limit, established by a government, on either the quantity or the value of certain goods that may be imported or exported. Nations sometimes use quotas to protect their industries from foreign competition. This policy is called protectionism. In other cases, nations use trade quotas to punish certain other nations for their trade policies, political behaviors, or military actions. A trade surplus exists when a nation sells more goods and services to other nations than it buys. A nation with a trade surplus has a favorable balance of trade. A trade surplus increases the gross national product. A trade deficit exists when a nation buys more goods and services from other countries than it sells. A nation with a trade deficit has an unfavorable balance of trade. A trade deficit decreases the gross national product.

Comprehension Check Ask several students: In your own words, what are imports and exports? How do American workers benefit from imports? from exports?

KEY TO SUCCESS
As technology becomes more sophisticated, successful businesses find ways to reinvent themselves. One corporate example in the U.S. economy is the DuPont Corporation. Its products have changed whole industries. For example, DuPont nylon revolutionized the textile industry in 1935. More than once, the company has introduced products and technologies that changed the world. In 1969, the first man on the moon wore a spacesuit made mostly of DuPont materials. And in 2000, DuPont scientists developed Sorona, a biodegradable polyester that can be recycled indefinitely.

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The balance of payments is the difference between the amount of money a nation’s economy spends overseas and the money it receives. This difference is sometimes referred to as the balance of trade. Workers, businesses, and nations will be ruined financially if they continually spend more money than they receive. When all is said and done, the capability of individual businesses determines how competitive a nation is in the world market. Likewise, the capability of individual workers determines how competitive a business is in the world market. Making effective use of every employee—from the company’s president to its rank-and-file workers—will keep the United States competitive in the world marketplace. This goal requires a workforce with competitive skills and a positive work attitude.

Reteaching Have students complete the “Descriptive Match” worksheet found in the Chapter 15 file of the Preparing for Career Success Instructor’s CD-ROM, Third Edition. Reteaching Have students complete the “Outlining Economics and Work” worksheet found in the Chapter 15 file of your Preparing for Career Success Instructor’s CD-ROM, Third Edition.

Section 6: Get Involved
Answer the following on a separate sheet of paper, and be prepared to discuss your responses in class. 1. What are some advantages and disadvantages of selling goods and services overseas? 2. How can communications technology be helpful or troublesome for a business involved in the global economy? 3. Seventy-five years ago, very few U.S. jobs depended on foreign trade. Today, millions of U.S. jobs depend on the global economy. What has caused this change in the world of work, and what changes do you see taking place?

Chapter 15 Review
Enrich Your Vocabulary
On a separate sheet of paper, number from 1 to 18, and complete the following activity. (Do not write in your textbook.) Match each statement with the most appropriate term from the “Enrich Your Vocabulary” list at the beginning of the chapter by writing that term next to the correct statement. 1. The social science concerned with the way a society uses its productive resources to fulfill the needs and wants of each member 2. The U.S. economic system 3. A person or group that buys or uses goods or services to satisfy personal needs or wants 4. The willingness of consumers to buy goods or services at a certain price in the marketplace 5. The willingness of producers to produce and sell goods or services at a certain price in the marketplace 6. The science of mechanical and industrial arts

Reteaching Have students complete the “Finding the Right Words” and “Checking Your Location” worksheets in Chapter 15 of the Preparing for Career Success Student Activity Book, Third Edition.

Enrich Your Vocabulary Answers 1. economics 2. free enterprise system 3. consumer 4. demand 5. supply 6. technology (continued)

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Enrich Your Vocabulary Answers (continued) 7. comparative advantage 8. Federal Reserve System 9. limited resources 10. gross national product 11. industrial products 12. opportunity cost 13. profit 14. services 15. market 16. competition 17. economic system 18. scarcity

7. The ability of a producer to provide a good or service at a lower opportunity cost than other producers 8. A network of 12 regional banks that regulates banking in the United States 9. Natural resources, labor, capital, and management 10. The total value of goods and services that a nation produces for the marketplace during a specific time period 11. Goods produced for and sold to other producers 12. The resource or benefit that a company gives up to produce a particular product or provide a particular service 13. Money left over after all of the expenses are paid 14. Tasks that other people or machines perform that cannot be physically weighed or measured

Check Your Knowledge Answers 1. To provide a process for the production and distribution of goods and services. 2. To intervene and establish protective regulations when matters concerning the public good are at stake. Government regulation reduces fluctuations between good times and bad times; promotes the growth of businesses and the number of jobs; ensures fair competition between businesses; provides programs of importance to all people, such as transportation, national defense, and public education; and takes care of the minimum basic needs of adults and children who are victims of unemployment or other unfortunate circumstances. 3. To satisfy consumers’ changing demands for goods and services. 4. Jobs are created for workers, and employers gain the opportunity to earn profits. 5. A production system, a service system, a distribution system, consumers, and a system of exchange. 6. Profit creates new jobs; profit pays for worker training and the cleanup of industrial pollution; profit keeps companies in business. Additional answers may be given. (continued)

15. A group of people or organizations that purchase a particular good or service 16. Striving against others to win something 17. The method a society uses to determine how it will use and distribute available resources 18. The condition that exists when people have limited resources compared to their wants

Check Your Knowledge
On a separate sheet of paper, answer the following questions. (Do not write in your textbook.) 1. What is the major purpose of an economic system? 2. What is the role of government in the economy? 3. What is the goal of economic activity? 4. What are the two major benefits of turning new ideas into products or services and new businesses? 5. What are the five major parts of all economic systems? 6. What are three reasons why profit is necessary in our free enterprise system?

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7. Why has the federal government passed laws to prevent monopolies? 8. What are three safeguards that have been built into our economy to help protect both business owners and workers from large swings in the business cycle? 9. What is the major advantage of specialization? 10. What is a tight-money policy? How does it affect our economy? 11. What are the two major factors that have moved the world toward a global economy?

Develop SCANS Competencies
This activity will give you practice in developing the information and interpersonal skills that successful workers use. Discuss the importance of interest rates with a parent or other adult. Ask how this person’s saving, borrowing, and spending decisions might change if interest rates were 2 percent higher or lower. (Do not ask about specific amounts of money.) Write a paragraph that explains the adult’s answers and what they show about the importance of interest rates to consumer decisions.

Check Your Knowledge Answers (continued) 7. Monopolies destroy competition and eliminate small businesses. 8. Unemployment insurance benefits for workers, corporate policies that attempt to keep dividend payments more stable than corporate profits to protect investors, fiscal and monetary policies of the federal government that regulate the rates of interest paid to businesses or individuals and determine the amount and types of taxes that will be paid or the tax exemptions that will be allowed. 9. Specialists are able to produce a higher volume of goods or services at a lower cost than would otherwise be possible. 10. In a tight-money policy, banks decrease the amount of money in the economy and increase the rate of interest charged for loans. Tight money causes less borrowing, less purchasing of goods and services, fewer jobs, and a move toward recession. 11. Technology and high-tech communications. Enrichment Have students complete the Chapter 15 section of the Preparing for Career Success Student Portfolio, Third Edition.

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