Unit 2 Economic Systems and the American Economy

1. Unit 2Economic Systems and the American Economy Section1 Economic Systems

2. Economic Systems The way a nation determines how it will use its resources to meet people’s wants and needs. These systems answer 3 basic questions What to produce? How to produce it? Who to produce it for?

3. What to Produce Deciding what you want to produce. This decides what trade – offs you are willing to make. Smart Cars SUVs

4. How to Produce it After you decide what to produce you have to decide how you want to produce it. You must decide how you will use your resources factors of production Land Labor Capital

5. How to Produce it $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

6. For Whom To Produce? Lastly you must decide who you will try to sell your product to. Different economic systems answer these questions in different ways

7. For Whom To Produce?

8. Types of Economic Systems There are 4 types of economic systems that answer the 3 basic questions of economics. Traditional economy Command economy Market economy Mixed economy

9. Traditional Economy Answers the 3 basic economic questions according to tradition. You perform the same trade as your parents do. Advantages –you know what you are expected to do, strong family and community Disadvantages – change is discouraged or punished, production is insufficient

10. I need a job. But I only know how to do what my father taught me!

11. MoooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooMooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo

12. Command Economy Government answers the 3 basic economic question. A person or people in the government will control every aspect of the economy Advantages – resources can be rerouted easily Disadvantages – lack of incentives, lack of consumer choices

15. Market System Individuals answer the 3 basic economic questions. Individuals control all of the resources (factors of production) Advantages – economic freedom, creates competition, incentive driven Disadvantages – makes it hard for people who cannot work to survive.

16. I still have some of the money that I have saved. Maybe I should use it to finance a new business. Now that I’ve made it to America I need to make some money.

17. Stacks on Stacks on Stacks!!!

18. Mixed System Combines elements of a market economy and a command economy. Most countries have this economy including the U.S. Allows individuals economic freedom but allows for the government to intervene and regulate certain areas.

19. /COMMAND MIXED MARKET

20. The Market A voluntary exchange of goods and services between buyers and sellers. Prices are determined by scarcity

21. Circular Flow of Economic Activity Shows how a market system works. Shows the flow of resources between individuals and businesses.

22. Circular Flow Model

23. The blue lines represent the flows of factors of production and of goods in the economy. The green lines represent the flow of money in the economy. $ from sale of goods $ to purchase goods goods sent for sale receive goods in return Product Market Mrs. Jenkins’ Circular Flow of Economic Activity Business Household get $ in return get factors in return to produce goods use $ to pay for factors provide labor or rent property Factor Market

24. Section 2Characteristics of the American Economy

25. Capitalism • Another name for a market system • Sometimes called laissez – faire • The government takes a limited role • people make their own decisions • Has six major characteristics • Little government control • Freedom of enterprise • Freedom of choice • Private property • Profit incentive • Competition

26. Free enterprise system • People own factors of production and can use them as they please • Allows you to become successful but there is also a chance that you will fail and lose money

27. I’m so glad that I decided to produce the first car. It helps people get around faster and with less work. I’m also glad that it made me a millionaire! Good Idea

28. Good Idea, Bad Luck? • Whatever happened to HD DVD? • 2 similar new technologies were introduced at the same time • Sony decided that their PlayStation would use ___

29. Freedom of Choice • Buyers control what is produced • Buyers determine this by choosing what to buy • AKA voting with your $$$

30. Profit Incentive • Encourages entrepreneurs to start new businesses to make money • Profit – money left over after all cost of production have been paid

31. Private Property • Property that is held by individuals • Allows you to use your property as you see fit

32. Anything you own is private property

33. Competition • Rivalry among producers of similar products to gain more business by offering lower prices or better quality • Leads to efficient use of resources • Must have limited government control to exist

34. Competition

35. Section 3The Goals of the Nation

36. Goals of Free Enterprise • Freedom • Efficiency • Equity • Security • Stability • Growth

37. Economic Freedom • Allows members of society to make their own economic choices • Freedom comes with the risk of failure. If yourbusiness fails the government will not help you.

38. My small business failed and I lost everything. Too bad I’m not important enough to get bailed out by the government.

39. Meanwhile, back at AIG headquarters………

40. Maybe we should ask the government for help. Ladies and gentlemen, as you can see from the excellently done pie graph, we are losing money at an alarming rate. Any suggestions on what we should do? Yeah. We are such an important financial institution that they need us to survive. Looks like AIG is going to have to make a conference call to the President!

41. Yeah see Prez, its like this. Long story short we’re dead. We’re broke and are going to have close up shop. Buy us and help us out. Pleeeeeeeeeeeeeeeeeeaaaaaaaaaaaaaaaaase Man. Fox News is going to kill me for this one. Is this thing on? Testing 123. Yeah we’ll bail you out. I mean what are taxpayers good for? Yes Mr. President. We read you loud and clear. Mr. President, we were wondering if the government would like to enter the investment market?

42. Economic Efficiency • Using resources wisely so that the cost of the resources do not exceed the benefits OR =

43. Economic Equity • Trying to balance the economic system so that everything is FAIR (not EQUAL)

44. Equal pay, fair hiring, disabled workers, etc.

45. Economic Security • Protection against risks beyond our control • Such as…

46. LOOK OUT BELOW!!!!!!!! I’m the safety inspector. I’m here to check out your construction site. Holy crap! Somebody call an ambulance.

47. I’m injured and can’t work for 2 months. How will I support myself?

48. Thanks to workmen’s comp I get this large check. Now I have money until I’m able to work again. GA SBWC Got hurt, missed work

49. Economic Stability • Seeks to reduce extreme ups and downs of the standard of living • Standard of living – material well being of an individual, group or nation. It is measured by average value of goods and services used by the average person

50. A low standard of living is not very much fun.