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Chapter 2:

Chapter 2:. Economic Systems and Decision-Making. Economic Systems. Remember the three basic questions: 1. What to produce? 2. How to produce? 3. For whom to produce?. Traditional Economies. How do they answer the three basic questions? What are some advantages and disadvantages?

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Chapter 2:

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  1. Chapter 2: Economic Systems and Decision-Making

  2. Economic Systems • Remember the three basic questions: 1. What to produce? 2. How to produce? 3. For whom to produce?

  3. Traditional Economies • How do they answer the three basic questions? • What are some advantages and disadvantages? • Examples

  4. Command Economies • How do they answer the three basic questions? • What are some advantages and disadvantages? • Examples

  5. Market Economies • How do they answer the three basic questions? • What are some advantages and disadvantages? • Examples

  6. Mixed Economies • All modern economies have elements of all three systems – traditional, command and market • Examples of each in the U.S. economy • “Modified private enterprise economy”

  7. The “Pillars” of Free-Enterprise

  8. Private Property Rights • Private ownership of economic resources • Limited government interference • Businesses are free to compete • Businesses have an incentive to be efficient and successful

  9. Economic Freedom • Consumers choose what to buy • Producers choose what to sell • All exchange is voluntary

  10. Profit Motive • Encourages efficiency • Encourages innovation and invention • Leads to economic growth and a higher standard of living

  11. Competition • Leads to greater efficiency • Results in lower prices and increased quality • Leads to greater consumer choice

  12. If one of the pillars should fall…… • All four characteristics are necessary for a flourishing free-enterprise economy • This gives the government a role in the economy to ensure the four pillars remain standing

  13. The Players in the Game • The Entrepreneur • Essential for Economic Growth • Inventors/Innovators • Risk-Takers • If successful: • Create more and better jobs • Leads to more and better pay • Increase competition • Creates more and better products at lower prices

  14. The Players in the Game • The Consumer • “Consumer Sovereignty” • Holds the power • Determines what goods get produced • “Dollar Votes” • Every purchase is a vote for a good/service

  15. The Players in the Game • The Government • Protector • Against discrimination, unsafe products, misleading advertising, unsafe work conditions • Provider • Roads, schools, libraries, social services • Consumer • Purchases goods and services from the private sector, employer of resources • Regulator • Regulatory agencies: FDA, FCC, etc.

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