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Chapter 2 Section 1 Economic Systems

VIEWS: 13 PAGES: 37

									Chapter 2 Section 1
Economic Systems

   What is an Economic System?

       How societies choose to organize
    themselves to use their resources to satisfy
    their needs and wants.
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   1. Traditional System
    –   Resources allocated according to ritual, habit, or
        custom.
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   1. Traditional System
    –   Examples: Tribal societies in parts of Africa,
        South America, Asia
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   1. Traditional System
    –   Advantages
            Everyone knows their role
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   1. Traditional System
    –   Disadvantages
            Tradition rules – discourages progress and technological
             advancement
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   2. Command System
    –   Resources allocated by the Government – one
        person (dictator) or committee (communism)
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   2. Command System
    –   Advantages
            Changes can be made quickly in production of goods
             and services.
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   2. Command System
    –   Disadvantages
            Not responsive to the wants of consumers.
            Does not give incentive to work hard or be innovative
            Requires large Government bureaucracy
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   3. Market Economies
    –   People and businesses decide what is going to
        be produced and in what quantity
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   3. Market Economies
    –   Examples
            U.S., Canada, Japan, South Korea, Singapore,
             European Area countries
Chapter 2 Section 1
Economic Systems


   Three Ways to Organize an Economy

   3. Market Economies
    –   Advantages:
            Can adjust over time to meet needs/wants
            Individual Freedom
            Limited Government involvement –”Lassiez-Faire”
            Decentralized decision-making
            Variety of Goods and Services
            High degree of consumer satisfaction
Chapter 2 Section 1
Economic Systems

   Three Ways to Organize an Economy

   3. Market Economies
    –   Disadvantages
            Not everyone benefits – some needs are not met
            Does not provide enough services that are highly valued
            High degree of uncertainty/insecurity
            Markets can fail – lack of competition, resource don’t’ always flow
             freely, lack of information about the markets for desired goods and
             services
Chapter 2 Section 2
Evaluating Economic Performance


   Economic and Social Goals
    –   Common goals shared by people in a society
    –   Economic goals can sometimes conflict with
        Social goals.
Chapter 2 Section 2
Evaluating Economic Performance


   Economic and Social Goals
   Economic Freedom
    –   Individuals free to make their own economic
        choices
    –   Business free to produce what they want
Chapter 2 Section 2
Evaluating Economic Performance


   Economic and Social Goals
   Economic Efficiency
    –   Efficient use of resources and under-utilize
        resources
Chapter 2 Section 2
Evaluating Economic Performance


   Economic and Social Goals
   Economic Equity
    –   “Level playing field”
            All people have a fair chance at competing for societal
             resources.
            Business can’t be deceptive in selling goods or service
Chapter 2 Section 2
Evaluating Economic Performance


   Economic and Social Goals
   Economic Security
    –   Protection from adverse economic events – layoff,
        recessions, illness, etc.
    –   Social Securtiy
            Guaranteed income for retirees.
Chapter 2 Section 2
Evaluating Economic Performance


   Economic and Social Goals
   Full Employment
    –   Economy creates as many jobs as possible for
        the people who want one.
    –   Creates stability in society
            If you are working you are not rioting!
Chapter 2 Section 2
Evaluating Economic Performance


   Economic and Social Goals
   Price Stability
    –   Stable prices in economy
    –   Moderate inflation
    –   Prices are important signals to people everyday
            Think gasoline!!
Chapter 2 Section 2
Evaluating Economic Performance


   Economic and Social Goals
   Economic Growth
    –   Producing more goods and services
    –   Increasing the production capacity
    –   This is what gives you a place in the economy to
        work and prosper
Chapter 2 Section 2
Evaluating Economic Performance


   Trade-Offs Among these Goals
   Are these goals compatible – yes and no!
    –   Economic freedom conflicts with Economic
        Equity, Economic Security, and possibly
        Economic Efficiency
Chapter 2 Section 2
Evaluating Economic Performance


   Economic and Social Goals
Chapter 2 Section 3
Capitalism and Economic Freedom


   Capitalism
    –   Private citizens and businesses own the factors of
        production

    Free Enterprise
      Competition with minimal government
      interference
Chapter 2 Section 3
Competition and Economic Freedom


   Competition and Free Enterprise
   Economic Freedom
    –   Individuals and businesses acting in their own
        self-interest to produce for themselves
Chapter 2 Section 3
Competition and Economic Freedom


   Competition and Free Enterprise
   Voluntary Exchange
    –   Buyers and sellers freely engaging in market
        activities
    –   Both better off in exchanging money for goods
        and services
Chapter 2 Section 3
Competition and Economic Freedom


   Competition and Free Enterprise
   Private Property Rights
    –   You have a right to what you produce and/or
        acquire.
    –   Gives people and business the INCENTIVE to
        produce and/or acquire “things”
Chapter 2 Section 3
Competition and Economic Freedom


   Competition and Free Enterprise
   Profit Motive
    –   Incentive to produce and/or create.
    –   Profit – you end up with more than when you
        started. Not only in money terms
            A teacher profits financially AND in other ways.
Chapter 2 Section 3
Competition and Economic Freedom


   Competition and Free Enterprise
   Competition
    –   Vital to keeping prices as low as possible
    –   Ensures innovation and high quality
    –   Contributes to Economic Efficiency
Chapter 2 Section 3
Competition and Economic Freedom


   The Role of the Entrepreneur
    –   Organizes the factors of production to make
        goods/services people want
    –   Encouraged by profit motive
Chapter 2 Section 3
Competition and Economic Freedom


   The Role of the Consumer
   Has power by “voting with our dollars”
   Strong signals to suppliers
   “Consumer Soverienty”
Chapter 2 Section 3
Competition and Economic Freedom


   The Role of Government
   Protector
    –   Makes sure there is a “rule of law”
            Protects property rights
            Enforces contracts
            “rules of the game”
Chapter 2 Section 3
Competition and Economic Freedom


   The Role of Government
   Provider and Consumer
    –   Govt. provides goods and services
            Education, parks, defense, welfare
Chapter 2 Section 3
Competition and Economic Freedom


   The Role of Government
   Provider and Consumer
    –   Govt. consumes
            Buys goods and services from private business
            “consumes” labor – people to work for the government
Chapter 2 Section 3
Competition and Economic Freedom


   The Role of Government
   Regulator
    –   Preserves competition
            Prevents monopolies
Chapter 2 Section 3
Competition and Economic Freedom


   The Role of Government
   Regulator
    –   Controls certain prices
            Insurance, electricity
Chapter 2 Section 3
Competition and Economic Freedom


   The Role of Government
   Regulator
    –   Imposes restrictions on businesses
            Safety, pollution, zoning laws
Chapter 2 Section 3
Competition and Economic Freedom


   The Role of Government
   Promoter of National Goals
    –   (see earlier slide)
    –   Mixed Economy
            Free Markets AND Government “oversight’ of the
             economy”
            “Free but not Free”

								
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