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Ch. 2: Economic Systems. S1: Answering the 3 Economic Questions S2: The Free Market S3: Centrally Planned Economies S4: Mixed Economies. Bell Work. Get books/folders ready Copy Chart on page 23 somewhere in notes Fill this in as we go along in notes

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ch 2 economic systems

Ch. 2: Economic Systems

S1: Answering the 3 Economic Questions

S2: The Free Market

S3: Centrally Planned Economies

S4: Mixed Economies

bell work
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
2 1 answering 3 economic questions
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
  • 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
3 economic questions
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
question 1 2
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
question 3
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
economic goals
Economic Goals
  • Efficiency
  • Freedom
  • Security
  • Equity
  • Growth
economic efficiency
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
economic freedom and security
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
economic equity and growth
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
finish 1 1
Finish 1.1
  • BW
    • Complete pg. 13
      • Exploration; Both A and B
economic goals in conflict
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
traditional economies
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
lesson closing
Lesson Closing
  • HW and some of BW tomorrow
    • Page 55
      • Evaluating U.S. Economy
    • Read Section 2
        • Get started on Sect. 2 GUIDED READING/REVIEW
    • Fill in S1 Chart on top of notes.
chapter 2 bell work
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

chapter 2 section 2
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
  • 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
why do markets exist
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
free market economy
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
factor and product markets
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
self regulation
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
self regulation24
  • 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”
advantages of free market
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
lesson closing27
Lesson Closing
  • Workbook
    • Pg. 14
    • Pg. 63
  • Quick Video over Market Vs. Command System: DONE
  • HW
    • Read Section 3
    • Finish up pg. 63 Activity
chapter 2 section 3
Chapter 2 Section 3

Get books/folders

Finish up Pg. 63 from workbook

Copy down chart from section 3

chapter 2 section 329
Chapter 2 Section 3
  • “What are characteristics of centrally planned economy?” write in notes
  • Learning objectives
    • How centrally planned economy is organized
    • Distinguish between socialism and communism
    • Analyze the use of central planning in Soviet Union and China
    • Identify disadvantages of centrally planned economy
  • Key Terms
  • What are characteristics of a centrally planned economy?
    • The Government answers the 3 economic questions
    • Govt. owns factors of production
    • Opposition to private property, free-market pricing, competition, and consumer choice
how central command works
How Central (command) Works
  • Govt., rather than indiv’s answers key economic ?s
    • Govt. owns both land and capital
    • Govt. controls where people work and their pay
  • Operate in contrast of free-market
    • Oppose major concepts of Free-market
      • Private Property
      • Free-pricing
      • Competition
      • Consumer choice
two communist economies
Two communist economies
  • Soviet Union
    • 1st communists state in 1917; lasted till 1991
      • Wanted to build power/prestige
        • Dedicated best LLC to heavy industry
          • Greatly effected factories of consumer goods
        • Led to recurring shortages for lots of goods
  • China (1949-70s)
    • Govt. controlled all aspects of Chinese economy
    • Took over farming too, forced people into farming communities
      • Led to shortages form decreased farm production
      • Eased control in 70s of most aspects
    • More economic freedom has allowed China to grow
disadvantages of planned
Disadvantages of Planned
  • Often have trouble meeting the basic economic goals
    • Decreases efficiency, poorly adjustable to market changes
    • Minimal economic freedom
    • Innovation/creativity not rewarded, limits growth
    • No equity
  • Can help jump-start a small economy or sector of.
    • Guarantees jobs/incomes to people
lesson closing35
Lesson closing
  • Read Socialism in classroom
    • What do you think would happen in this classroom
    • In other classroom that may be different than this room
    • TPS on some good/bad things that a planned/control economy may offer
  • Complete
    • Workbooks
      • Pg. 71: comparing soc/comm.
      • Pg. 15
chapter 2 section 4
Chapter 2 Section 4


Grab books/folders

Finish any of pg. 71 in workbooks

Copy chart on pg. 39

chapter 2 section 437
Chapter 2 Section 4
  • “What are the characteristics of a mixed economy?” Write at top of notes
  • Learning objectives
    • Explain rise of mixed economies
    • Interpret circular flow model of mixed economy
    • Compare mixed to other types
    • Describe role of free enterprise in U.S. economy
  • Key Terms
  • What are the characteristics of a mixed economy?
    • Market based economy w/ some govt. intervention
    • Govt. helps societies meet needs too difficult to meet in Free-market
      • Example: Education
    • Govt. protects property rights and ensures that exchanges in marketplace are fait
rise of the free market
Rise of the Free-Market
  • Even “pure” “free-marketers” understand the need for some govt. involvement
  • Mixed economy has a free-market, but also a certain degree of govt. control
  • Why govt.?
    • Need to provide all members of a society some basic needs
    • Nat’l Defense, public education
    • Protect private property
    • Ensure fairness of exchanges in marketplace
government in the market
Government in the Market
  • Govt’s buy labor in the factor market to have employees help run its programs
  • Governments purchase goods/services from firms in product market
  • Governments also collect taxes from both households and firms
  • Look at figure 2.4 on pg. 40
    • Answer questions……….. TPS
mixed economies w high govt intervention pg 41
Mixed economies w/high Govt. Intervention: pg. 41
  • North Korea; represents one extreme
    • Economy is almost totally dominated by Govt.
    • Govt. owns all the property and output equipment
  • China
    • Closer to middle b/c they are going through an economic transition toward privatization
mixed economies w little govt intervention u s
Mixed Economies w/little govt. intervention & U.S.
  • Hong Kong
    • Represents one of world’s free-est markets
    • Private sector is “king”
    • Little govt. interference
      • Est. wage/price controls on rent and public services
  • U.S.
    • Mixed economy w/Free-market foundation
    • Characterized as a free-market system
    • Look @/answer caption on page 43
us economy
US Economy
  • Govt. intervenes in economy by………
    • Keeping order
    • Providing vital services
    • Promoting general welfare
  • Federal/state laws help protect private property
    • Marketplace (place to exchange goods/services) operates with limited degree of govt. regulation
  • Economic Freedom
    • Very high level of freedom
    • Foreign investment/free trade encouraged
    • Banking industry operates under few restrictions
      • Foreign banks have fewer restrictions
lesson closing45
Lesson Closing
  • Case Study: Look at Wall Street Video Edition
  • Look at Essential Questions Video
  • Complete the following
    • Workbook pgs. 16-19
    • Pg. 77 (FDA)
  • When done, finish up any of other workbook assigned pages
  • Grab Ch. 2 Study Guide