Ch. 2: Economic Systems

1. Ch. 2: Economic Systems S1: Answering the 3 Economic Questions S2: The Free Market S3: Centrally Planned Economies S4: Mixed Economies

2. Bell Work • Get books/folders ready • Copy Chart on page 23 somewhere in notes • Fill this in as we go along in notes • Will help give you an overview of section • Answer Chapter 2 Warm-up • Pg. 12 A-D

3. 2.1: Answering 3 Economic Questions • Chapter 2 Essential Question • “How does a society decide who gets what Goods/Services” • Section 1 Guiding Question • “What Goals/Values affect how a society answers the key economic questions?” • S.1 Objectives: • 3 Economics questions • Societal values that determine how they are answered • Characteristics of Traditional Economy • Key Terms • http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s1.swf

4. Introduction • Goals/values that affect how a society answers key ?s • Each society is guided by its economic system • Affects the way it does business w/in society and w/other societies • A societies values, such as freedom or tradition, guide the type of economic system they will have

5. 3 economic questions • B/C of scarce resources a society must answer 3 ?s • What goods/services should be produced? • How should these goods/services be produced? • Who consumes these goods/services? • How ?s are answered defines type of economic system society has

6. Question 1 & 2 • What goods/services should be produced? • Society must decide what to produce in order to satisfy wants/needs of its people • Because of scarcity (limited resources), each decision comes at an opportunity cost • How should goods/services be produced? • As a society decides, it considers…… • How to best use its 3 factors of production • Land • Labor • Capital : human/physical • Look at Figure 2.1 on pg. 24 (read/answer TPS) • What does each choice involve? • Trade-offs

7. Question 3 • Who consumes goods/services? • Mostly determined by how a society distributes income • Through factor payments, including profits, society can determine who will be consumers of goods/services • How much will owners make, teachers, bankers, etc. • Answer can tell a great deal about societies values

8. Economic Goals • Efficiency • Freedom • Security • Equity • Growth

9. Economic Efficiency • Societies answer 3 ?s based on importance they attach to their economic goals • Scarce resources make societies try to maximize what they can produce using their resources • If they can accurately assess what to produce they can increase their efficiency

10. Economic freedom and security • Some societies limit the economic freedoms of its people • U.S., we face some limitations, but in general, we have a lot of freedom • Economic systems also strive to achieve a degree of economic security • Basically, systems are there to reassure people that goods/services will be available and they will get paid for work as well

11. Economic Equity and Growth • Another goal that is defined differently in different societies. Basically how they will divide their “pie” • Checkpoint: “What are 2 examples of economic goals?” • Growth: Economies need to grow • Need to provide jobs for new people in workforce • Strive to improve standards of living • Innovation plays a large role in economic growth and success

12. Economic goals in conflict • There are some additional economic goals for certain societies • Environmental protections • Full employment • Protecting national industries • Societies end up having to prioritize their economic goals (arrange them in order of importance) • Each choice comes with some kind of trade-off

13. Traditional Economies • Oldest and simplest economic system • Rely on habit, custom, or ritual • Revolve around family • Little room for innovation/change • Found in communities that… • Stay small and close • Work to support entire community over selves • Success is judged by how they meet their own needs • Often lack modern conveniences • Lower standards of living

14. Lesson Closing • Complete pg. 13 • Exploration; Both A and B • HW and some of BW tomorrow • Page 55 • Evaluating U.S. Economy • Read Section 2

15. Chapter 2 Bell-Work Get Books/Folders Finish up pg. 55 Copy chart for S2 to top of notes or sheet Fill in Chart from section 1 that you copied Go over answers

16. Chapter 2 : Section 2 • “What are the characteristics of a free-market economy?” write on top of notes • Objectives • Explain why markets exist • Analyze a circular flow model of a free-market economy • Describe self-regulating nature of marketplace • Identify advantages of free-market economy • Key Terms • http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s2.swf

17. Introduction • What are the characteristics of Free-market economy? • Characterized by….. • Households and firms • Factor and product markets • Self-interest • Competition • Economic freedom, efficiency, and equity

18. Why do markets exist? • Markets exist to eliminate the need for any one person to be self-sufficient • Examples: NYSE, Farmers markets, Scheel’s, Wal-Mart • They allow us to exchange the things we have for things we want • Money for goods/services in most cases • Lead to specialization • Rather than self-sufficiency, we specialize in a few products/services • Leads to efficient use of 3 factors of production • Allows businesses to focus on limited number of related products/services • Markets are needs as an arena to buy/sell products

19. Free market economy • 3 ?s answered by voluntary exchanges in Marketplace • Individuals choose • What gets made • How it is made • How much people can consume of good/service • Individuals/Private businesses own factors of production • Look at figure 2.2 pg. 31 • Need to understand what each sector provides one another • Answer two questions…. TPS

21. Factor and Product markets • Factor Market • Firms purchase factors of production • Renting/buying land, hiring/paying workers, borrowing $$ • Product Market • Arena where households buy good/services a firm produces • Checkpoint: • What is the role of firms in the free-market economy? • Firms buy factors of production from households, then uses them to produce goods/services

22. Self Regulation • Wealth of Nations • Adam Smith observed countless transactions in marketplace that showed…. • Buyers/Sellers only consider their self-interests • Smith’s take • Positive incentives of lower prices causes more buying • B/C opportunity cost of the purchase is lowered • Regulations • Self-interest is the motivating force in the free-market • Consumers pursue their self-interest by looking for lower/lowest prices

23. Self-Regulation • Competition • Firms seek to make higher profits by increasing sales • Competition among firms makes increasing sales not always possible • Self-interest and competition work together to regulate the marketplace • Smith called this the “Invisible Hand”

24. Advantages of Free Market • “Perfect Conditions” lead to meeting these goals • Read aloud…. Pg.34 • Efficiency • Rapid response to changing conditions • Freedom • Large degree of economic freedom • Growth • Encouragement of economic growth • Lend themselves to consumer sovereignty • Consumers have power to decide what gets produc

25. Answer the Question to caption on pg. 32

26. Lesson Closing • Workbook • Pg. 14 • Pg. 63 • HW • Read Section 3 • Finish up pg. 63 Activity