chapter 2 economic systems current by 6VCM0Lp


									Name: ____________________________________________________________________________________________
Unit 1: Fundamental Economic Concepts
Main Topics: Economic Systems, Economic and Social Goals, Circular Flow Model, American Free Enterprise
Chapter 2 – Economic Systems

SSEF4 The student will compare and contrast different economic systems and explain how they answer the three
basic economic questions of what to produce, how to produce, and for whom to produce.
a. Compare command, market, and mixed economic systems with regard to private ownership, profit motive,
consumer sovereignty, competition, and government regulation.
b. Evaluate how well each type of system answers the three economic questions and meets the broad social and
economic goals of freedom, security, equity, growth, efficiency, and stability.

Section 1 – Answering the Three Economic Questions
     Economic system – is the method used by society to ________________________________________________
     The Three Key Economic Questions are
            o What ____________________________________________________________________
            o How _____________________________________________________________________
            o Who _____________________________________________________________________
Four Types of economic systems
            1. Traditional Economy – relies on __________________________________________________ to decide
                the three economic questions.
            2. Market Economy – economic decisions are made by ____________________________________ and
                are based on ________________________________________________.
            3. Command Economies – in a centrally planned economy the ____________________________________
                alone decides how to answer the three economic questions.
            4. Mixed Economy – most modern economies are mixed economies, ________________________ - based
                economic systems in which the government _________________________________________________
Using the Chart Below, describe each of the Economic Goals and Societal Values. Then provide a real-life example of

Economic Goal and         Summary                                    Example
Societal Value

1. Economic Efficiency

2. Economic Freedom

3. Economic Security
   and Predictability

4. Economic Equity

5. Economic Growth
   and Innovation

6. Other Goals
Review Economic Goals
Situation                                                                Economic Goal
    1. Last week I willingly enrolled in college courses at Coastal. I
        am so happy that I make my decisions about my future.
    2. My uncle lost his job, but thankfully he is able to receive
        unemployment checks.
    3. Wal-Mart recently upgraded all of their registers to touch
        screen monitors.
    4. General Motors replaced all of their human workers with
        robots in order to increase productivity.
    5. As a result of the internet and technology, our economy
        has experienced significant expansion over the past 30
    6. I can always expect Publix to have the food I like!

    7. Hopefully in the future we will have full employment.

    8. With every degree/skill I earn, I improve my ability to make

       Daily Assignment Chapter 2 Section 1 – pgs. 26-27
        1. How does a traditional economy answer the three economic questions? _____________________________
        2. Describe traditional economies and their communities. ___________________________________________
        3. What is a disadvantage to a traditional economy? _______________________________________________
        4. How are the three economic questions answered in a market economy? _____________________________
        5. What are other names for market economies? __________________________________________________
        6. How are the three economic questions answered in a command economy? ___________________________
        7. Why are they referred to as command economies? ______________________________________________
        8. Why are most modern economies referred to as mixed economies? _________________________________

SSEF3 The student will explain how specialization and voluntary exchange between buyers and sellers increase the
satisfaction of both parties.
a. Give examples of how individuals and businesses specialize.
b. Explain that both parties gain as a result of voluntary, non-fraudulent exchange.

Section 2 – The Free Market
     Imagine that you are walking into Walmart. List 3 items that you could purchase and the departments that you
        would find them in.
        Item                                              Department



      Market – buyers and sellers ____________________________________________________________________
      Market Economy – economic decisions, __________________________________________________________
       are made by __________________________ and _________________________________based on exchange of
      Capitalism (free enterprise) – Individuals and businesses own the ______________________________________
       and can profit on them
      Voluntary Exchange - is the act of ______________________ and ______________________ freely and
       ______________________ engaging in ____________________________________________.
      Specialization – the separation of _________________________________________________; people focus on a
      Division of Labor – workers perform ____________________________________________________ in order to
      Household – ________________________________________________________________ living in a residence
           o Consumers - use the _____________________________________________ to satisfy wants and needs
      Firm – _____________________________________________ that uses resources to
       ___________________________________________, which it then sells
           o Suppliers – transform “________________________” (F.O.P.) into
                “__________________________” (consumer products)

      Product Markets – _______________________________________________ interact; producers sell their
           o Households are ____________________________________ of goods and services
           o Firms are _____________________________________ of goods and services
      Factor Markets – the markets where productive resources (F.O.P) are bought and sold

           o      Labor - Firms (businesses) _________________________________________________________
           o      Land - _________________________________________________________ land
           o      Capital - Use money from ____________________________________________
                  (_______________________, investment, etc) to purchase _____________________________________
SSEMI1 The student will describe how households, businesses, and governments are interdependent and interact
through flows of goods, services, and money.
a. Illustrate by means of a circular flow diagram, the Product market; the Resource (factor) market; the real flow of
goods and services between and among businesses, households, and government; and the flow of money.
       Circular Flow Model - shows the flow of _________________________ and ____________________________
          from and to _________________________and _________________________
        Application Question
           1. In the factor market, what do businesses provide households? __________________________________
           2. The flow of goods and services in the product market is represented by which firm and products on the
                model below? ______________________________________________
           3. When you apply for a job at the local Starbucks which market are you in? _________________________
           4. Which color arrows represent the flow of money; what color arrows represent the flow of inputs and
                outputs. __________________________________

       Competition Article
        1. Do you agree with Vincent Lombardi’s assertion that people are born with the desire to compete why or
            why not? ________________________________________________________________________________
        2. What areas do you see competition in the economy of the United States ? ___________________________
        3. How is competition beneficial to our economy/society? ___________________________________________
        4. How is it harmful to our economy/society? _____________________________________________________
       Competition – efforts among _________________________________________ to attract consumers at various
            o At the heart of ________________________________________
       Incentive – an expectation that __________________________________________________________________
        (positive and negative)
       Businesses respond to __________________________________
       Consumers respond to __________________________________

Chapter 2 Section 2 – Daily Assignment Questions
Economic Profile Adam Smith pgs. 33 (separate sheet of paper)

   1.   What was Adam Smith’s ethnic and professional background? _________________________________________
   2.   What was the name of the book that he published; when was it published? ______________________________
   3.   What did Smith identify in the book? _____________________________________________________________
   4.   What did he assert about specialization and division of labor? _________________________________________
   5.   What did he believe about the role of government in the economy? ____________________________________
   6.   Define the French term Laissez Faire; why did Smith believe in Laissez-Faire economics? ____________________
   7.   What is meant by his metaphor of the Invisible Hand? _______________________________________________
   8.   How do both consumers and businesses benefit from this philosophy? __________________________________

Section 3 – Centrally Planned Economies
     Command – ____________________________________________________________ the Factors of Production
     Centrally Planned Economy – central government answers the
        ______________________________________________; ________________ to produce, ________________to
        produce, and ________________to produce
            o Oppose _________________________, free market pricing, economic ___________________
Socialism and Communism

      Karl Marx – German ___________________________________________ that studied
       ______________________________________ in Europe
           o Communist Manifesto – written by Marx and __________________________________________
              became basis for modern-day __________________________________________
           o Thought capitalism would fail because it
           o Believed in a ___________________________system, where all share in
           o Socialism – distribution of __________________________________________ equally amongst society
           o Communism – political and economic system with ____________________________________________
           o Authoritarian Government – exact _________________________________________from their citizens;
              do not allow __________________________________________

Chapter 2 Section 3 – Daily Assignment Questions “The Former Soviet Union”, pgs. 36-38
How did the Soviet arise? (separate sheet of paper
    1. Where did Soviet planners allocate the factors of production? _________________________________________
    2. How did the Soviet Union control agriculture? ______________________________________________________
    3. What three industries did Soviet Planners favor? ____________________________________________________
    4. How did the Soviet Union view entrepreneurial endeavors? ___________________________________________
    5. What was the quote used by Soviet consumers as a joke? ____________________________________________
    6. Why were Soviet Consumers’ left unsatisfied? _____________________________________________________
Page 39 – Russia in Crisis
    7. How did many Russians initially respond to the Communist collapse? ___________________________________
    8. What happened over the next decade? ___________________________________________________________
    9. How did Russia deal with corruption? _____________________________________________________________
    10. What were some characteristics of Russia’s financial problems? _______________________________________
    11. What evidence can be seen that success is in sight? _________________________________________________
Section 4 – Modern Economies
     Free Enterprise – __________________________in the marketplace is allowed to flourish with
     Modified Free Enterprise (mixed economy) – businesses are free to compete with _________________________
Laissez Faire in a Modern Economy
     Laissez Faire – no _____________________________________________________________________________
     History has shown that _______________________________________________________ is necessary in the
         economy; some needs are ______________________________________________________________________
             o National defense, __________________________, ___________________________________, etc
             o Government acts a ____________________________________________________________________
                  of the economy
Government Revenue
     Taxes from both ________________________and __________________________
             o Federal ________________________, state_________________________, social security,
                  ___________________________/Medicaid, ______________________________________, etc.
Government in the Factor Market
    Government purchases _________________________, __________________________, and
      ________________________________ from households
         o US government pays _____________ employees, _______________ billion for labor

Government in the Factor Market
    Government purchases _________________________, __________________________, from
         o Buildings, ___________________________, telephones, ___________________________, etc.

Economic Goals        Market                    Command                         Tradition

Economic Freedom      Yes - High levels of      No - Many aspects of            No - Extremely limited, a
                      economic freedom          economic activity are tightly   person’s role in society is
                                                controlled and state-           based on custom, heritage
                                                dominated                       and tradition

Economic Efficiency

Economic Security


Economic Equity

Economic Growth

Economic Innovation

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