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Economic Systems Chapter 2, Section 1

Economic Systems Chapter 2, Section 1. Answering the Three Economic Questions. EQ: How do different economic systems answer the three economic questions?. The Economic System. A system in which the society decides to produce & distribute goods & services. Economic Goals.

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Economic Systems Chapter 2, Section 1

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  1. Economic SystemsChapter 2, Section 1 Answering the Three Economic Questions EQ: How do different economic systems answer the three economic questions?

  2. The Economic System • A system in which the society decides to produce & distribute goods & services

  3. Economic Goals Different societies answer the three economic questions based on the importance they attach to various economic goals.

  4. The Four Types of Economies

  5. Traditional • Relies on habit, custom or ritual in answering the Three Key Econ questions

  6. FreeMarket • All decisions are made by the individual & are based on exchange or trade

  7. Command /Centrally Planned • The gov’t alone decides how to answer the Three Key Econ questions

  8. Mixed • A market-based econ in which the gov’t plays a limited role

  9. Factor Payments • Income for supplying factors of production. • Why isn’t everyone paid the same? • Society values resources & products differently. • The Doctor v. garbage man

  10. Safety Nets • Why would a gov’t create & provide these programs? • To fulfill the goal of economic security and predictability for it’s citizens

  11. Traditional Economy Command Economy Market Economy Mixed Economy Amish Cuba United States United States Quiz?!!!!Give One Example for Each of the Following.

  12. Specialization & Efficiency • Allows one to focus on a particular task & not worry about basic needs at the same time • More efficient

  13. Factor market v. Product Market • Factor Market • Provides goods & services necessary to produce more goods & services • Product Market • Finished goods & services to consumers

  14. Profit • A financial gain made in a transaction

  15. Households & Firms & the Market Econ • What’s their role? • Household • Provide factors of production in factor market & buying power in the product market

  16. Households & Firms & the Market Econ • What’s their role? • Firms • Buyers of factors of production & suppliers of goods & services

  17. Adam Smith’s “Invisible Hand”; Its Effect on the Market Place • Consumer self-interest & firms competing naturally lead to an econ that consumers can buy goods/services at reasonable prices

  18. The Incentive & Consumer Sovereignty Relationship • The consumer chooses what to buy, thus exerts control over what is produced by creating an incentive for firms to produce the good or service

  19. Socialism v. Communism • Socialism • Gov’t often owns major industries it deems vital to the nation • Can be achieved through democracy

  20. Socialism v. Communism • Communism • All economic & political power is controlled by the central gov’t • Often authoritarian

  21. The Authoritarian Government • What are the characteristics? • Strongly centralized • Demand strict obedience • Disallow individuals freedom of judgment & action

  22. Soviet Collectives & Incentives • Offer little incentive • farmer paid a set wage • told what to produce • why produce more or produce efficiently?

  23. Soviet Heavy Industry & Opportunity Cost • What did it cost? • The Soviets lacked adequate consumer goods and services

  24. Economic efficiency Economic security & predictability Economic equality Economic growth & innovation THE ANSWER Economic efficiency Economic growth & innovation Quiz?!!!Which of the following would be difficult to achieve in a command economy?

  25. Laissez-faire • What is it? • A doctrine that states that a gov’t should not intervene in the marketplace

  26. Transition to Free Enterprise • Some centrally planned nations are shifting to free enterprise to keep pace with the evolving global economy

  27. Privatizing and a Centrally Planned Economy • Privatizing is slow due to there being few enterprises or businesses exist • No one there to take over

  28. What’s the difference? Freedoms The individual not the gov’t make econ decisions Quiz?!!!!!US Free Enterprise v. Other Economic Systems

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