Economics Chapter 2

1. Economics Chapter 2 Economic Systems

2. Chapter 2: Economic Decisions 2.1 Economic Systems 2.2 Evaluating Economic Performance 2.3 Capitalism and Economic Freedom

3. 2.1 Economic Systems ACOS: 2. Compare the development and characteristics of the world’s traditional, command, and market economies.

4. 2.1 Economic Systems Daily Objectives: • Describe the characteristics of the traditional, command, and market economies. • Explain the advantages and disadvantages of the traditional, command, and market economies.

5. 2.1 Economic Systems • Traditional Economies • Command Economies • Market Economies • Three Requirements for a Market Economy

6. Economic Systems • An economy is “organized way of providing for wants and needs of their people.” • Most countries have a traditional, command, or market economy. Joseph Stalin

7. Traditional Economies • The distribution of scarce resources is determined by ritual, habit, or custom. • Many indigenous peoples like the Australian Aborigines utilize the traditional economy.

8. Traditional Economies • The biggest advantage is that each person knows what roles to play. • The problem is that it discourages creativity and new ways of doing things. • This results in a lower standard of living.

9. Command Economies • A central authority answers the three basic questions in a command economy. • Examples include Cuba, North Korea, and the former Soviet Union. • The strength of this system is that it can adjust to needs quickly.

10. Command Economies • Command economies have several disadvantages: • It does little to address the wants of consumers. • It does not give people incentive to work hard. • Most workers receive similar pay. (Ex: doctors and janitors) • Workers are often assigned jobs below their potential.

11. Command Economies • A large bureaucracy is necessary to make decisions. • This results in inefficiency. • This increases production costs. • It does not have flexibility to adjust to little issues. • Creativity is limited, and little incentive is offered to workers.

12. Market Economies • People and firms answer the three basic questions. • People “vote” for what they want with their money. • Examples include the U.S., Canada, Japan, South Korea, Britain, and other Western European nations.

13. Market Economies • The ability to adjust to change over time is a strength of this system. (ex: gas shortages in 1970s) • Change is not discouraged like the traditional economy. • Change is not delayed or forced on people as in a command economy.

16. Market Economies • Another strength of the market economy is its emphasis on individual freedom. • Government influence is kept to a minimum. • Another strength of the market economy is the fact that decision making is made by the people themselves.

17. Market Economies • This results in a variety of goods and services. • Customer satisfaction is much greater in a market economy.

18. Market Economies • The market economy has some disadvantages as well. • It does not provide for the basic needs of everyone in society. • It is unable to provide some services efficiently. (ex: national defense) • Uncertainty about the future may also be a weakness. (ex: unemployment)

19. National Defense

20. Unemployment

22. Three Requirements for a Market Economy • Competition is necessary. • Resources must be free to change to other activities. (ex: worker changing job) • Consumers need sufficient information to make wise economic decisions.

23. 2.2 Evaluating Economic Performance

24. ACOS:2. Compare the development and characteristics of the world’s traditional, command, and market economies.

25. Objectives: • Describe the basic economic and social goals used to evaluate economic performance. • Evaluate the trade-offs among economic and social goals.

26. 2.2 Evaluating Economic Performance • Seven Economic and Social Goals • Economic Freedom • Economic Efficiency • Economic Equity • Economic Security • Full Employment • Price Stability • Economic Growth • Other Goals and Choices • Internet Resources

27. Seven Economic and Social Goals • Economic Freedom • Economic Efficiency • Economic Equity • Economic Security • Full employment • Price stability • Economic Growth

28. Economic Freedom • This goal promotes an individual’s ability to choose careers and how to spend money. • It also allows businesses to choose where and how to produce their goods and services.

29. Economic Efficiency • This goal seeks to be resourceful with scarce factors of production. • It also reflects the desire that benefits outweigh the costs of production.

30. Economic Equity • This social goal seeks fairness among workers. • Minimum wage laws reflect this goal.

32. Economic Security • This social goal seeks to provide for the unhealthy, elderly, and unhealthy. • Social Security is a federal program that provides disability and retirement benefits for working people.

35. Full Employment • This goal states that those with the necessary skills and are willing to work have jobs. • This does not mean all adults have jobs.

36. Price Stability • This goal seeks a consistent level in prices of goods and services. • Inflation is a rise in the general level of prices.

38. Price Stability • People with a fixed income have difficulty dealing with inflation. • Interests rates usually rise with inflation. • This makes it harder for businesses to borrow and spend money.

39. Economic Growth • Growth allows people to enjoy more goods and services. • Economic growth is necessary for nations with growing populations.

40. Other Goals and Choices • Societies may gain new goals. (ex: clean environments) • Societies may face trade-offs to achieve certain goals. • They must prioritize their goals.

41. Internet Resources • http://www.bls.gov/ • http://www.bls.gov/oco/

42. 2.3 Capitalism and Economic Freedom

43. ACOS:2. Compare the development and characteristics of the world’s traditional, command, and market economies.

44. 2.3 Capitalism and Economic Freedom Objectives: • Explore the characteristics of a free enterprise system. • Describe the role of the entrepreneur, the consumer, and government in a free enterprise economy.

45. 2.3 Capitalism andEconomic Freedom • Capitalism • Five Characteristics of a Free Enterprise Economy • Economic Freedom • Voluntary Exchange • Private Property Rights • Profit Motive • Competition • The Role of the Entrepreneur • The Role of the Consumer • The Role of Government

46. Capitalism • Capitalism is “a system in which private citizens own the factors of production.” • The American economy is a free enterprise system. • The phrase free enterprise refers to an “economy in which competition is allowed to flourish with a minimum of government interference.

47. Five Characteristics of a Free Enterprise Economy • Economic Freedom • Voluntary Exchange • Private Property Rights • Profit Motive • Competition

48. Economic Freedom • People choose where they want to work. • Businesses can charge what they want. • Both are free to risk success or failure.

49. Voluntary Exchange • Voluntary exchange is the act of buyers and sellers freely and willingly engaging in market transaction. • Buyers and sellers both benefit from the sales.

50. Private Property Rights • Private property refers to tangible and intangible items. • It gives people the incentive to work and improve their standard of living. • People take better care of their own property.