【Civics】Our Daily Life and the Economy: A Starter Guide!
Hello! Let's explore the theme of "Our Daily Life and the Economy" together.
When you hear the word "economy," it might sound a bit intimidating. But in reality, it's something very close to home. Buying bread at a convenience store or putting your New Year's gift money into a savings account—all of these are parts of the "economy."
Once you master this chapter, you'll be able to see "how money moves through the world," which makes news and everyday shopping much more interesting! It might feel a little tricky at first, but don't worry. Let's take it one step at a time.
1. Consumer Life and Household Accounts
Our lives are built on "consumption," which involves buying goods and receiving services.
① How Household Accounts Work
Economic activities conducted by a household are called household accounts. Household accounts consist of money coming in (income) and money going out (expenditure).
■ Types of Income
・Earned Income: Salaries earned by working at a company, etc.
・Business Income: Income earned from running a business or farming.
・Property Income: Interest from savings or rental income from property.
■ Types of Expenditure
・Consumption Expenditure: Spending on necessities like food, rent, and utilities.
・Non-consumption Expenditure: Taxes and social insurance premiums (expenses you cannot change by choice).
・Savings: Money set aside for the future.
【Key Point】
Income = Expenditure (Consumption Expenditure + Non-consumption Expenditure) + Savings
This is the basic balance. On exams, a common question is that "taxes are included in non-consumption expenditure!"
② Consumer Rights and Responsibilities
When we buy products, we are often in a weaker position compared to companies. That’s why there are rules to protect consumers.
■ Consumer Rights
These are based on the "Four Consumer Rights" proposed by U.S. President John F. Kennedy in the 1960s (e.g., the right to be safe, the right to choose).
■ Laws Protecting Consumers
・Consumer Contract Act: You can cancel a contract if you were forced into it based on false information.
・Product Liability Act (PL Act): If you get injured due to a defective product, you can demand compensation from the manufacturer.
・Cooling-off System: A mechanism that allows you to cancel a contract unconditionally within a certain period, even if you were pressured into it by things like door-to-door sales.
Trivia: Since online shopping is something you choose to look for and purchase yourself, the legal "cooling-off" period often doesn't apply. It's important to check the return policy before you order!
★ Summary of this section:
Household accounts are made up of income, expenditure, and savings, and consumers are protected by laws like the PL Act and the Cooling-off system!
2. Market Economy and How Prices Are Determined
How are the prices of goods determined? It depends on the balance between "those who want to buy" and "those who want to sell."
① Demand and Supply
・Demand: The quantity that consumers "want to buy."
・Supply: The quantity that producers "want to sell."
The mechanism by which prices are determined by the balance of these two is called the market mechanism.
【Steps to Determining Price】
1. Demand > Supply (Many people want it!):
There is a shortage, so the price rises.
2. Demand < Supply (It’s not selling!):
Sellers want to reduce inventory, so the price falls.
3. The price when demand and supply match is called the equilibrium price.
② Monopoly and Oligopoly
Normally, prices are determined by free competition, but sometimes a small number of companies dominate the market.
・Monopoly: One company dominates the market.
・Oligopoly: A few companies dominate the market.
Because this makes it hard for prices to go down, these are restricted by the Anti-Monopoly Act. The agency that keeps an eye on this is the Japan Fair Trade Commission.
Common Mistake:
"Public utility charges" (electricity, gas, water, etc.) are not determined by free market competition because they significantly affect the lives of citizens; instead, they are decided or approved by the government or local public authorities. Be careful—not everything is decided by the market!
★ Summary of this section:
Prices are determined by the balance of "demand" (buyers) and "supply" (sellers). The Anti-Monopoly Act exists to protect competition!
3. Production and Corporations
The "companies" are the ones making the things we use. The core of the modern economy is the joint-stock company (corporation).
① How Joint-Stock Companies Work
To run a large business, you need a lot of money. To get it, companies issue stocks to raise funds from many people.
・Shareholder: A person who buys stock and provides money.
・Dividend: Money distributed to shareholders when a company makes a profit.
・General Meeting of Shareholders: The highest decision-making body where shareholders gather to decide on important company matters.
② Corporate Social Responsibility (CSR)
Companies are expected not only to make a profit but also to act as responsible members of society.
(e.g., Working on environmental protection, following the law (compliance), supporting cultural activities, etc.)
★ Summary of this section:
Joint-stock companies raise funds through stocks and share profits as "dividends." It’s important to focus on social contribution, not just profit!
4. Finance and the Bank of Japan
The act of lending and borrowing money is called finance. Banks are at the center of this.
① The Role of Banks
Banks take money entrusted to them by everyone (deposits) and lend it to companies or individuals who need money, earning a profit from the difference in interest. Since they don't borrow directly from depositors but act as an intermediary, this is called indirect finance.
② The Bank of Japan (Central Bank of Japan)
The Bank of Japan is the "bank for banks," with a different role than the banks we use daily. It primarily has three faces:
1. Bank of issue: Issues Bank of Japan notes (banknotes).
2. Bank for banks: Lends money to and holds deposits for ordinary banks.
3. Bank for the government: Manages the nation’s funds.
【Important!】 Adjusting the Economy
The Bank of Japan adjusts the amount of money circulating in the economy when the business climate is too hot or too cold (monetary policy).
・When the economy is bad:
The Bank wants to increase money in circulation, so it lowers interest rates. This makes it easier for companies to borrow money, which stimulates the economy.
・When the economy is overheating (inflation concern):
The Bank wants to curb the amount of money in circulation, so it raises interest rates.
Study tip:
Imagine, "When the economy is bad, make it easy to borrow money to give it a boost! (Interest rates down)."
★ Summary of this section:
Banks are the windows for "indirect finance." The Bank of Japan is a special bank that "issues banknotes" and "adjusts the economy!"
Review
Great job! To condense this chapter into three main points:
1. We live as consumers protected by laws.
2. The price of goods is determined by the balance of demand and supply.
3. The Bank of Japan supports the economy by controlling the amount of money in the world.
Everything is connected! For example, when the Bank of Japan lowers interest rates (4), companies borrow money to make new products (3), those products hit the market to determine prices (2), which then impacts our household budgets (1). Isn't that interesting?
Keep reviewing, and make sure you have a solid grasp of these basic terms!