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Chapter 2 Economic Systems & the American Economy. Economic Systems. Economic system – way in which a nation uses its resources to satisfy its people’s needs and wants. 3 Basic ?s of Economic Systems. What should be produced?

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economic systems
Economic Systems
  • Economic system – way in which a nation uses its resources to satisfy its people’s needs and wants
3 basic s of economic systems
3 Basic ?s of Economic Systems
  • What should be produced?
    • If one item is produced, then less of something else must be produced.
  • How should it be produced?
    • What labor, capital goods, and factors of production will be used?
  • For whom should it be produced?
    • How will goods be distributed?
      • Price system, majority rule, 1st come-1st served, sharing equally or military force
types of economic systems
Types of Economic Systems
  • Traditional System
  • Command (controlled) System
  • Market (capitalist)
  • Mixed System
traditional system
Traditional System
  • Traditional economy – system in which economic decisions are based on customs and beliefs that have been handed down from generation to generation
    • Trades and work learned from parents
    • Know what is expected of you
    • Change discouraged or punished
    • Production inefficient and choice of goods is rare
    • Examples – Eskimos, Aborigines & Amish?
command system
Command System
  • Command economy – system in which the government controls the factors of production and makes all decisions about their use
    • Government decides what to produce & how it will be distributed
    • Government guides people into certain jobs
    • Lack of incentive to work hard, few choices, limited efficiency or inventiveness
    • North Korea & China (changing)
market system
Market System
  • Market economy – system in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own and their families’ best interests
  • Limited government, individuals control factors of production and economy driven by market price
market system8
Market System
  • Market – freely chosen activity between buyers and sellers of goods and services
  • Circular flow of economic activity – economic model that pictures income as flowing continuously between businesses and consumers
  • Advantages – free to choose career and how to spend $, own private property, take risks, & many goods for purchase
  • Disadvantages – How to provide for elderly, young & sick
mixed system
Mixed System
  • Mixed economy – system combining characteristics of more than one type of economy
  • Most countries have a mixed economy
  • Most individuals make decisions but are regulated to various extents by the government
characteristics of the american economy
Characteristics of the American Economy
  • Freedom of choice – can choose to produce or not produce or to buy or not to buy
  • 6 Characteristics of a pure market system
    • 1. Little or no government control
    • 2. Freedom of enterprise
    • 3. Freedom of choice
    • 4. Private property
    • 5. Profit incentive
    • 6. Competition
characteristics of the american economy11
Characteristics of the American Economy
  • Limited role of government
    • Adam Smith – founder of modern economics - Wealth of Nations – people will use resources efficiently to achieve the maximum good for society
    • Capitalism – economic system in which private individuals own the factors of production & decide how to use them within legislated limits
    • Laissez-faire – pure capitalism – economic system in which the government minimizes its interference with the economy
    • Government has increased its role since the 1880s
characteristics of the american economy12
Characteristics of the American Economy
  • Freedom of enterprise
    • Free enterprise system – economic system in which individuals own the factors of production and decide how to use them within legal limits; same as capitalism
    • Regulations – zoning, child labor, pollution & taxes – examples
    • May make money or may lose money
  • Freedom of choice
    • Buyers, not sellers, make decisions about what is to be produced
    • Government influences the market to protect consumers – safety standards & price controls
characteristics of the american economy13
Characteristics of the American Economy
  • Profit Incentive
    • Profit – money left after all the costs of production have been paid – wages, bills & taxes
    • Profit incentive – desire to make money that motivates people to produce and sell goods and services
characteristics of the american economy14
Characteristics of the American Economy
  • Private Property
    • Private property – whatever is owned by individuals rather than by government
    • Constitution guarantees an owner’s right to private property and its use (eminent domain)
  • Competition
    • Competition – rivalry among producers and sellers of similar goods and services to win more business
    • Leads to lower prices, better quality and an efficient use of resources
    • Low barriers to entry are needed
the goals of the nation
The Goals of the Nation
  • Goals of free enterprise in the U.S.
    • Economic freedom – allows members of society to make choices and possibly fail
    • Economic efficiency – wise use of available resources so that costs do not exceed benefits
    • Economic equity – attempt to balance an economic policy so that everyone benefits fairly – (equal pay, hiring practices & disabled)
the goals of the nation16
The Goals of the Nation
  • Economic security – protection against accidents, natural disasters, bank failures etc.
  • Economic stability – reduce extreme ups & downs in standard of living
    • Standard of living – the material well-being of an individual, group, or nation measured by how well their necessities and luxuries are satisfied
  • Economic growth – expansion of the economy to produce more goods, jobs and wealth
  • Trade-Offs among goals – limits on what you can do with resources due to scarcity (Social Security)
the goals of the nation17
The Goals of the Nation
  • Rights & Responsibilities
    • Right to enter any profession or business you want
    • Right to work very little or a lot
    • Right to buy what you want
    • Need to support yourself and your family
    • Need to be a productive member of society
    • Need to have responsible government
goods services at school
Goods & Services at School

Post HS Planning

Grades/Report Cards

Internet usage

Vending Machines

Health services


Church service time


Secretarial Services

  • Education
  • Parking lot attendant
  • Custodial
  • Entertainment
  • Construction workers
  • Bathrooms
  • Lunch
  • SAP
  • Guidance






Social activities

SAT Prep




  • Transportation
  • Extra-curriculars
  • Role Models
  • Season Passes
  • Announcers, scorekeepers etc.
  • Music lessons
  • Weightroom
  • Voice
  • Discipline

Class trip

  • Recycling
  • Peer mediation
  • Locks/Lockers
  • Field trips
  • Playground
  • News
  • Carnival
  • Concessions
  • Special Education
  • Tutoring
  • Parking
  • Pictures
  • PTO
  • Community Service
  • School to Work
  • Dual Enrollment
  • TSS