Economics Unit 1 Lesson 3 Part 4

DISTRIBUTING GOODS AND SERVICE IN AN ECONOMY

As you can see, some form of distribution is necessary to divide up goods and services between people. You encounter distribution methods each day, including finding a seat on the bus or in a classroom, voting for Student Council positions, making a sports or arts team, finding a parking place, or buying food. There are limited items available and people find ways to distribute them—either on purpose or not. With any distribution method, there are people who receive what they want and others who do not. For example, the force method allows stronger people to receive the goods at the expense of weaker individuals. Or, the contest method gives goods and services to the "contest winners," while those who did not win do not receive them. Some of the distribution methods mentioned are used and may even work in certain situations throughout the world. But, countries still need a distribution method that works in the marketplace. They need a way to distribute large quantities of goods and services to millions of people every day. There are several systems that governments use to achieve this goal, including command and market systems. Command Systems A command economy means that the government makes the decisions on how to allocate resources and how to distribute goods and services. The government decides what goods and services should be produced, how they should be produced, and who will consume them. There are a few countries in the world that have command economies, including Cuba and North Korea. Until recently, China also had a centrally planned economy. Command economies may achieve targeted goals. For example, China wanted to move from being a farming-based economy to an industrial one (think replacing farms with factories and businesses). Since the Chinese government controlled the productive resources, they used them to make this goal happen. Unfortunately, this goal came at great costs to the Chinese people, such as not having enough food to eat. Shortage of goods and services with little or no selection is a disadvantage of command economies. Having little freedom as a producer or a consumer, inefficient uses of productive resources, limited selection of goods, shortage of goods and services, and slow growth in the economy (with the exception of China) are other disadvantages. Imagine It: What's it like to live in a command economy? Think about a life with little freedom. You have very little choice about what your job will be or where you will work or live. You have very little selection of goods and services. And these items may run out quickly—so there will be shortages of goods and services that you may need or want. Market Systems How do countries like the United States distribute goods and services? They do it the same way that they allocate productive resources—through price (or the monetary cost of an item). The United States allows prices to be the deciding factor on who gets what. For example, you walk into a store and a new shirt costs $5. Do you want to buy the shirt for this price? It is your choice—you have the freedom to buy the shirt or not. If you are willing and able to pay this price, then you can have the shirt. Likewise, producers have the freedom to choose a price for their products and to produce the goods and services that they choose. Freedom is a big part of the free market system. Consumers have the freedom to buy what they want at the prices offered, and producers have the freedom to use their productive resources to make the goods and services that they choose. The method of distributing goods and services through prices exists in economies called "free market." In free market economies, both consumers and producers act in their own self-interests. Producers want to sell their goods and earn money. But, they can only do this if consumers are willing and able to buy their products. Consumers want to buy goods and services, but have preferences for certain kinds of products and the prices that they are willing to pay. There are also many places that consumers can purchase goods and services (think comparative shopping). So, producers compete for consumers by offering bigger selections and lower prices. This competition is good for consumers who often receive better products at lower prices. The cycle of consumer spending and business growth also makes the economy grow, which gives more people jobs. This type of economic system paired with America's political system that allow most industries to be controlled privately is called capitalism. America is a capitalistic society. Distributing goods and services through price has other advantages, such as efficiency. This is because consumers signal to the producers what they are willing to buy, and producers allocate their resources to make these products. How does this work? Think about your T-shirt business. At first, consumers were buying the T-shirts, and you allocated your resources towards making the shirts. But when people no longer bought the T-shirts, you used your resources to make towels instead. Think about it! A wage (or the amount that a person earns in a given amount of time) is a kind of price. A company hires a person and pays a wage for the employee's services. Not all workers may be fairly compensated, because it is hard to determine what is fair. But in free market economies, workers have the choice to compete for better jobs and wages. Reality Check: While the United States is a free market economy, it is not a pure one. The American economy is mostly run by the decisions of consumers and producers, where goods, services, and resources are distributed by price. But, there is government involvement, too. For example, the government provides public goods. It also regulates industries to ensure that companies are safely producing goods that are not harmful to your health, such as keeping harmful chemicals out of food and toys.

SEVEN DIFFERENT DISTRIBUTION METHODS

First-Come, First-Served-It is a method that consists of goods and services being given out to the first people that arrive. Allocation by Force-Another way to distribute scarce resources is by force. Basically, the stronger take what they want from the weaker individuals. It is distribution by bullying. Majority Rule-The U.S. form of government is a democracy. Americans vote for government officials that represent their beliefs. This does not mean that everyone's positions will be represented, because democracy is based on majority rule. Contests- are another way to distribute things. For example, a baking contest may award a prize to the person who cooks the best pie. With the lottery method-, you would fill out an application, and then a computer would randomly generate living choices. Personal Characteristics- What about deciding things based on personal characteristics? For example, students with good voices are selected for the school musicals. In other words, the parts in a musical are distributed to the students who have the best voices for the roles.

wage

amount that a person earns for working expressed in a unit of time, like $9 an hour

Select all the items that describe a command economy.

distribution by the government poor selection of goods shortage of goods limited freedom

free market economy

economy where goods, services, and resources are distributed by price

command economy

economy where goods, services, and resources are distributed by the government

Phil wanted the computer that Amy had, so he just took it. This is an example of distribution by

force

Select all the items that describe a free market economy.

freedom for consumers and producers competition between businesses distribution by price motivated by self-interest

standard of living

level of comfort that people feel when goods and services are available to them

Jacob wanted a parking space in a nearby lot. He filled out an application and a computer generated his choices. This is an example of distribution by

lottery

price

monetary cost of an item

Ellen had a bag full of pencils. She gave out one pencil to everyone in the class. This is an example of distribution by

sharing