Modern Economy

By Tristan Ness

The Basics

Our modern economy is based off the principal of capitalism. This means that all businesses and materials are owned by the people instead of by the government. The fact that the government does not monopolize all of the country's resources means that it is possible for an unequal distribution of those resources among people, causing different classes to emerge. People who are very successful and have made much money through their endeavors are grouped with the upper class. Likewise, middle and lower classes make an smaller amounts of money.

We base value off of a dollar scale, meaning everything has a value attached to it. The more dollar value a person owns, the more wealthy they are considered. The one reason this system succeeds is because it is backed by the gold standard. This means that even though our monetary system is not the same as those of other countries, the fact that all money is given a value based off of a fixed quantity of gold means that it can be exchanged and interchanged without losing meaning or value. It is still an unstable system though. If the production of a country's money is not carefully balanced, that country's money will lose meaning. This was most notably seen during Germany's economic crisis shortly after World War II. Germany owed the various countries who participated in the war a substantial debt in reparations, but did not have enough money to caver the expenses, so they just decided to print more, which rendered their currency worthless. If money is overproduced, then what value does it actually have? When to much of the same currency is made at once, it loses its illusion of value and becomes worthless as a result.

US Debt Crisis 2013 - US Economy Explained - Understanding the Financial Crisis

Video Analysis

This video covers the predicament that is faced by the United States' and world's economy. The gist of what it says is that there is too much of a deficit for the country to pay off with its annual income. We cannot produce more money because it will then be worth less, we can't raise taxes either for fear of economic upheaval, and we can't decrease spending because then the people we are spending money on will complain about not having enough money. All we can do is continue borrowing money until we either find a solution to the problem or until other countries stop lending us money. Either way, we can only really watch and wait until that point is reached.

Free Enterprise

The principal of free enterprise is one of the things that sets capitalism apart as an economic system. Free enterprise means that the government is involved in business only minimally and that the majority of all dealings are handled by the business owners themselves.

Price Elasticity

Price elasticity is the relationship between the value of a good or service and the demand for that good or service. The higher the demand, the higher the cost. The opposite is also true. This is because businesses need to adjust their prices to make a profit off of their services, but they also need to appeal to the masses by lowering their prices in order to create a higher demand for their good or service. This causes a constant fluctuation in prices as demand changes.

Circular Flow

The three stages of circular flow are production, consumption, and generation of income. The first stage involves creating a product, while the second and third stages focus on selling this product and creating a net gain of income. As this process continues, the theory is that the amount of income will increase over time as you are able to pay for the production of a larger quantity of product.



There are many different types of businesses in our modern day economy, each with its own distinctive characteristics. For example, there are non-profit organizations, there are green businesses, there are franchise businesses and quite a few more. Non-profit organizations are businesses that generally use their profit to improve services instead of paying dividends to investors. Green businesses use their funds to benefit the environment and promote environmentally friendly services. Franchise businesses are generally businesses that license trademarks to other entrepreneurs in order to make a profit. Online businesses establish their presence via the internet. And home based businesses are businesses that simply start out in the comfortable safety of one's home.