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									            TAKE OUT A BLANK PIECE OF PAPER . . . . THINK AND WRITE
•   What did you (or someone you know) have for breakfast this morning?

•   How did this type of food arrive in your/their house?

•   How did someone in the family know what and how much to buy for breakfast?

•   How did the store it was purchased from know that someone would buy it?

•   How does the local fast food restaurant know how many workers to schedule for each
    shift during the week?

•   What would happen if a change in consumer preferences and buying patterns
    significantly reduced the demand for a good or service?

•   What would happen if higher production costs significantly reduced the supply of a
    good or service?

•   Is a central authority needed to decide what, how, and for whom to buy and sell in
    competitive markets?
Unit 1, Ch. 2-1



                  Economic Systems


Why do we, as American consumers, have so many choices?

How is our economy different from the economies of other countries?
    Economic Systems
    Unit 2.1 vocabulary
•    Economic system
•    Traditional economy
•    Command economy
•    Market economy
•    Mixed economy
•    Market
•    Circular flow of economic activity
             Economic System
• The way in which a nation uses its resources to
  satisfy its people’s needs and wants

• Nations will have different economic systems, each
  system is still faced with answering the same three
  basic economic questions:
      • What should be produced?
      • How should it be produced?
      • For whom should it be produced?
     Types of Economic Systems
• Traditional System
  – System in which economic decisions are based on
    customs and beliefs that have been handed down
    from generation to generation
  – Economy based on the basic economic activities
    of hunting and gathering or farming.

  – Examples: Inuits of Northern Canada; Aborigines of Australia;
    San Bushmen of Kalahari in Africa
• Command System
  – System in which the government (central
    planners) controls the factors of production and
    makes all decisions about their use

     • Examples: North Korea; People’s Republic of China
• Market Economy
  – System in which individuals own the factors of
    production and make economic decisions through
    free interaction while looking out for their own
    and their families’ best interests

  – Also called capitalism

  – A pure market economy is the opposite of a pure
    command economy
• Mixed Economy
  --system combining characteristics of more than one
 type of economy

 --a mixed economy combines the basic elements of a
 pure market economy and a command economy

 --most countries are a mixed economy in which
 private ownership of property and individual decision
 making are combined with government intervention
 and regulations
“Market” -- Freely chosen activity between
buyers and sellers of goods and services
                                   THINK AND WRITE
•   What did you (or someone you know) have for breakfast this morning?

•   How did this type of food arrive in your/their house?

•   How did someone in the family know what and how much to buy for breakfast?

•   How did the store it was purchased from know that someone would buy it?

•   How does the local fast food restaurant know how many workers to schedule for each
    shift during the week?

•   What would happen if a change in consumer preferences and buying patterns
    significantly reduced the demand for a good or service?

•   What would happen if higher production costs significantly reduced the supply of a
    good or service?

•   Is a central authority needed to decide what, how, and for whom to buy and sell in
    competitive markets?
   Circular flow of economic activity
• Economic model that pictures income as flowing
  continuously between businesses and consumers
•   The red circle shows individuals (households) selling the factors of
    productions to business firms who use them to produce goods and
    services for households.

•   The blue circle shows the flow of money income from business firms to
    individuals (households) in the form of rents, wages, interest, and profits;
    and the return of money to businesses as consumer spending.



     Question: What underlying factor makes this circular flow work?
Unit 2.1

1.   In a chart similar to the one below, list the major types of economic
     systems and their differences.

      Type of System           Who Answers        Advantages/Disadvantage
                             3 Basic Questions               s




2.   A society’s values determine how it allocates its resources. Identify and
     describe a societal value (for example, stability, certainty, equality, or
     personal freedom) that influences a traditional economy and a command
     economy. Then identify and describe a time in American history when
     each system was used.
Characteristics of the American Economy
Unit 2.2 vocabulary
•   Capitalism
•   Laissez-faire
•   Free enterprise system
•   Profit
•   Profit incentive
•   Private property
•   Competition
     Limited Role of Government
• Capitalism or Free Enterprise System: economic
  system in which private individuals own the
  factors of production and decide how to use them
  within legal limits

• Laissez-faire: “pure capitalism” economic system
  in which the government lets people and
  businesses make their own economic decisions
  without government involvement (“hands off” “let
  people do as they choose”)
Economic system
                                     Capitalism
Traditional economy                  Laissez-faire
Command economy                      Free enterprise system
Market economy                       Profit
Mixed economy                        Profit incentive
                                     Private property
Market
                                     Competition
Circular flow of economic activity
       A Free Enterprise System:
• Freedom of choice (for both buyers & sellers)

• Profit incentive

• Private property

• Competition
• Take out a piece of paper. Get ready to read.

• After reading the 2 paragraphs (front & back),
  in your own words, write what the reading
  means.
 (E)very individual, therefore, endeavours as much
 as he can (to direct his resources toward his own
 business) so that its produce may be of the
 greatest value; every individual . . . neither
 intends to promote the public interest, nor knows
 how much he is promoting it . . . He intends only
 his gain , and he is in this, as in many other cases,
 led by an invisible hand to promote an end which
 was not part of his intention. . . By pursuing his
 own interest he frequently promotes that of the
 society more effectually than when he really
 intends to promote it”.

Circa: 1776
• “It is the maxim of every prudent master of a
  family, never to attempt to make at home what it
  will cost him more to make than to buy. The
  ta(i)lor does not attempt to make his own shoes,
  but buys them of the shoemaker. The shoemaker
  does not attempt to make his own clothes, but
  employs a ta(i)lor. The farmer attempts to make
  neither the one nor the other, but employs those
  different (craftsmen). All of them find it (in their
  best interests) to employ their whole industry in a
  way in which they have some advantage over
  their neighbours, and to purchase . . . whatever
  else they have occasion for”.
              Mini research
• Who was Adam Smith?
• What is the meant by the “invisible hand”?
• What positive or negative effect did Adam
  Smith’s invisible hand economic theory have
  in our economic system?
http://abcnews.go.com/Business/items-cost-
        2011-mcdonalds-netflix-gas-
         prices/story?id=12758503

								
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