“Introduction to Economic Systems” Critical Questions. What key economic questions must every society answer? What basic economic goals do societies have? What types of economic systems exist today?. What is an economic system?.
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
The method used by a society to produce and distribute goods and services
Because ALL economic resources are scarce, every society must answer three questions:
Making the most of resources
Freedom from government intervention in the production and distribution of goods and services
Economic security and predictability
Assurance a safety net will protect individuals in times of economic disaster
Economic growth and innovation
Fair distribution of wealth
Innovation leads to economic growth, and economic growth leads to a higher standard of living.
Environmental protection, variety
Societies answer the three economic questions based on their goals and values.
Traditional economiesrely on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it.
In a centrally planned economy the central government makes all decisions about the production and consumption of goods and services.
In a market economyeconomic decisions are made by individuals and are based on exchange, or trade.
Mixed economiesare systems that combine the free market with limited government intervention.
Who answers the 3 ?’s
Individuals with some government involvementComparing Economic Systems
Why do markets exist?Markets exist because none of us produces all the goods and services we require to satisfy our needs and wants.
A market is an arrangement that allows buyers and sellers to exchange goods and services.
Specialization is the concentration of the productive efforts of individuals and firms on a limited number of activities.
monetary flowFree Markets
Advantages of the Free Market
Free market economies have the highest degree of economic freedom of any economic system.
Additional Goals, i.e. variety
Free markets offer a wider variety of goods and services than any other economic system.
central authority controls the economy.
In a centrally planned economy, the government owns both land and capital. The government decides what to produce, how much to produce, and how much to charge.
Communism is a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the government. Communist governments are authoritarian in nature.
Socialismis a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society.
An economic system that permits the conduct of business with minimal government intervention is called free enterprise. The degree of government involvement in the economy varies among nations. Nations are placed on a continuum (a range with no clear divisions) of mixed economies. On one end are centrally planned economies and on the opposite end are free markets economies.
Continuum of Mixed Economies
Source: 1999 Index of Economic Freedom, Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick
Comparing Mixed Economies
Chapter 3 and 13 minimal government intervention is called American Free Enterprise
Understanding America’s Economic Structure
The Economic Trade-off (Freedom vs. Protection): Americans have favored economic freedom over economic regulation, but we still expect the government to protect us from the problems that can exist in free markets (market failure, externalities)
Poverty minimal government intervention is calledKey Indicators
Gross Domestic Product
The main indicator used to determine overall health of the economy is gross domestic product (GDP) which is the dollar value of all final goods and services produced within a country’s borders in a given year.
This will allow them to better determine upcoming business cycles to determine prosperity, recession or depression.
Limitation of GDP minimal government intervention is called
GDP vs. GNP
Annual income earned by
US owned firms and citizens.
Frictional Unemployment- Occurs when people change jobs, get laid off from their current jobs, take some time to find the right job after they finish their schooling, or take time off from working for a variety of other reasons
Structural Unemployment- Occurs when workers' skills do not match the jobs that are available. Technological advances are one cause of structural unemployment
Seasonal Unemployment- Occurs when industries slow or shut down for a season or make seasonal shifts in their production schedules
Cyclical Unemployment- Unemployment that rises during economic downturns and falls when the economy improves
The Bureau of Labor Statistics determines the unemployment rate (% of the labor force that is unemployed) each period
Full employment is the level of employment reached when there is no cyclical unemployment.
There are over two hundred categories of products that are included in the basket. These categories fall under 8 major groups:
FOOD AND BEVERAGES
EDUCATION AND COMMUNICATION
OTHER GOODS AND SERVICES
The three main problems caused by inflation are: