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CH. 2 ECONOMIC SYSTEMS Powered By Docstoc
					Ch. 2: Economic Systems

S1: Answering the 3 Economic Questions
S2: The Free Market
S3: Centrally Planned Economies
S4: Mixed Economies
Bell Work
Get books/folders ready
Copy Chart on page 23 somewhere in notes
   Fill this in as we go along in notes
     Will help give you an overview of section
Answer Chapter 2 Warm-up
   Pg. 12 A-D
 2.1: Answering 3 Economic Questions
Chapter 2 Essential Question
   “How does a society decide who gets
    what Goods/Services”
Section 1 Guiding Question
   “What Goals/Values affect how a society
    answers the key economic questions?”
S.1 Objectives:
   3 Economics questions
   Societal values that determine how they are answered
   Characteristics of Traditional Economy
Key Terms
Goals/values that affect how a society answers
 key ?s
   Each society is guided by its economic system
     Affects the way it does business w/in society and w/other
   A societies values, such as freedom or tradition,
    guide the type of economic system they will have
3 economic questions
B/C of scarce resources a society must answer 3 ?s
   What goods/services should be produced?

   How should these goods/services be produced?

   Who consumes these goods/services?

How ?s are answered defines type of economic
 system society has
Question 1 & 2
What goods/services should be produced?
   Society must decide what to produce in order to
    satisfy wants/needs of its people
   Because of scarcity (limited resources), each decision
    comes at an opportunity cost
How should goods/services be produced?
   As a society decides, it considers……
     How to best use its 3 factors of production
      Capital : human/physical
     Look at Figure 2.1 on pg. 24 (read/answer TPS)
     What does each choice involve?
 Question 3
Who consumes
   Mostly determined by how a
    society distributes income
   Through factor payments,
    including profits, society
    can determine who will be
    consumers of goods/services
    How much will owners make,
     teachers, bankers, etc.
      Answer can tell a great
        deal about societies values
Economic Goals




Economic Efficiency
                      Societies answer 3 ?s
                       based on importance
                       they attach to their
                       economic goals
                      Scarce resources make
                       societies try to
                       maximize what they
                       can produce using
                       their resources
                         If they can accurately
                          assess what to produce
                          they can increase their
Economic freedom and security
Some societies limit the economic freedoms of its
   U.S., we face some limitations, but in general, we
    have a lot of freedom
Economic systems also strive to achieve a degree
 of economic security
   Basically, systems are there to reassure people that
    goods/services will be available and they will get paid
    for work as well
Economic Equity and Growth
Another goal that is defined differently in
 different societies. Basically how they will divide
 their “pie”
Checkpoint: “What are 2 examples of economic
Growth: Economies need to grow
   Need to provide jobs for new people in workforce
   Strive to improve standards of living
   Innovation plays a large role in economic growth and
Finish 1.1
   Complete pg. 13
    Exploration; Both A and B
Economic goals in conflict
There are some additional economic goals for
 certain societies
   Environmental protections
   Full employment
   Protecting national industries
Societies end up having to prioritize their
 economic goals (arrange them in order of
   Each choice comes with some kind of trade-off
Traditional Economies
Oldest and simplest economic system
   Rely on habit, custom, or ritual
   Revolve around family
   Little room for innovation/change
Found in communities that…
   Stay small and close
   Work to support entire community over selves
Success is judged by how they meet their own
   Often lack modern conveniences
   Lower standards of living
Lesson Closing
HW and some of BW tomorrow
   Page 55
     Evaluating U.S. Economy
   Read Section 2
      Get started on Sect. 2 GUIDED READING/REVIEW
   Fill in S1 Chart on top of notes.
Chapter 2 Bell-Work

Get Books/Folders
Finish up pg. 55
Copy chart for S2 to top of notes or sheet
Fill in Chart from section 1 that you copied
   Go over answers
Chapter 2 : Section 2
“What are the characteristics of a free
 -market economy?”                   write on top of notes

     Explain why markets exist
     Analyze a circular flow model of a free-market economy
     Describe self-regulating nature of marketplace
     Identify advantages of free-market economy
Key Terms
What are the characteristics of Free-market
   Characterized by…..
    Households and firms
    Factor and product markets
    Economic freedom, efficiency, and equity
Why do markets exist?
Markets exist to eliminate the need for any one
 person to be self-sufficient
   Examples: NYSE, Farmers markets, Scheel’s, Wal-Mart
   They allow us to exchange the things we have for things we
     Money for goods/services in most cases
Lead to specialization
   Rather than self-sufficiency, we specialize in a few
   Leads to efficient use of 3 factors of production
   Allows businesses to focus on limited number of related
Markets are needs as an arena to buy/sell products
Free market economy
3 ?s answered by voluntary exchanges in
Individuals choose
   What gets made
   How it is made
   How much people can consume of good/service
Individuals/Private businesses own factors of
Look at figure 2.2 pg. 31
   Need to understand what each sector provides one
   Answer two questions…. TPS
Factor and Product markets
Factor Market
   Firms purchase factors of production
    Renting/buying land, hiring/paying workers, borrowing $$
Product Market
   Arena where households buy good/services a firm
   What is the role of firms in the free-market economy?
    Firms buy factors of production from households, then uses
     them to produce goods/services
Self Regulation
Wealth of Nations
   Adam Smith observed countless transactions in
    marketplace that showed….
     Buyers/Sellers only consider their self-interests
   Smith’s take
     Positive incentives of lower prices causes more buying
      B/C opportunity cost of the purchase is lowered
   Self-interest is the motivating force in the free-market
   Consumers pursue their self-interest by looking for
    lower/lowest prices
   Firms seek to make higher profits by increasing sales
   Competition among firms makes increasing sales not
    always possible

Self-interest and competition work together to
 regulate the marketplace
Smith called this the “Invisible Hand”
Advantages of Free Market
“Perfect Conditions” lead to meeting these goals
   Read aloud…. Pg.34
   Efficiency
     Rapid response to changing conditions
   Freedom
     Large degree of economic freedom
   Growth
     Encouragement of economic growth
   Lend themselves to consumer sovereignty
     Consumers have power to decide what gets produc
Answer the Question to caption on pg. 32
Lesson Closing
   Pg. 14
   Pg. 63
Quick Video over Market Vs. Command System:
   Read Section 3
   Finish up pg. 63 Activity
Chapter 2 Section 3

Get books/folders
Finish up Pg. 63 from workbook
Copy down chart from section 3
Chapter 2 Section 3
“What are characteristics of
 centrally planned economy?”                            write in notes

Learning objectives
   How centrally planned economy is organized
   Distinguish between socialism and communism
   Analyze the use of central planning in Soviet Union
    and China
   Identify disadvantages of centrally planned economy
Key Terms
What are characteristics of a centrally planned
   The Government answers the 3 economic questions
   Govt. owns factors of production
   Opposition to private property, free-market pricing,
    competition, and consumer choice
How Central (command) Works
Govt., rather than indiv’s answers key economic
   Govt. owns both land and capital
   Govt. controls where people work and their pay
Operate in contrast of free-market
   Oppose major concepts of Free-market
     Private Property
     Consumer choice
Socialism vs. communism

              • Wealth distribution
              • Equity only thru govt. or public
              • Market Socialism is a combo
                where govt. uses taxes to help

              • Govt. controls all
                resources/means of production
              • Capitalism is exploitation of
Communism       workers for few
Two communist economies
Soviet Union
   1st communists state in 1917; lasted till 1991
     Wanted to build power/prestige
      Dedicated best LLC to heavy industry
          Greatly effected factories of consumer goods
       Led to recurring shortages for lots of goods
China (1949-70s)
   Govt. controlled all aspects of Chinese economy
   Took over farming too, forced people into farming
     Led to shortages form decreased farm production
     Eased control in 70s of most aspects
   More economic freedom has allowed China to grow
Disadvantages of Planned
Often have trouble meeting the basic economic
   Decreases efficiency, poorly adjustable to market
   Minimal economic freedom
   Innovation/creativity not rewarded, limits growth
   No equity
Can help jump-start a small economy or sector of.
   Guarantees jobs/incomes to people
Lesson closing
Read Socialism in classroom
   What do you think would happen in this classroom
   In other classroom that may be different than this
   TPS on some good/bad things that a planned/control
    economy may offer
   Workbooks
    Pg. 71: comparing soc/comm.
    Pg. 15
Chapter 2 Section 4
      Grab books/folders
      Finish any of pg. 71 in workbooks
      Copy chart on pg. 39
Chapter 2 Section 4
“What are the characteristics of a
 mixed economy?”                   Write at top of notes

Learning objectives
     Explain rise of mixed economies
     Interpret circular flow model of mixed economy
     Compare mixed to other types
     Describe role of free enterprise in U.S. economy
Key Terms
What are the characteristics of a mixed economy?
   Market based economy w/ some govt. intervention
   Govt. helps societies meet needs too difficult to meet
    in Free-market
     Example: Education
   Govt. protects property rights and ensures that
    exchanges in marketplace are fait
Rise of the Free-Market
Even “pure” “free-marketers” understand the
 need for some govt. involvement
Mixed economy has a free-market, but also a
 certain degree of govt. control
Why govt.?
   Need to provide all members of a society some basic
   Nat’l Defense, public education
   Protect private property
   Ensure fairness of exchanges in marketplace
Government in the Market
Govt’s buy labor in the factor market to have
 employees help run its programs
Governments purchase goods/services from firms
 in product market
Governments also collect taxes from both
 households and firms
Look at figure 2.4 on pg. 40
   Answer questions……….. TPS
Mixed economies w/high Govt.
Intervention: pg. 41

North Korea; represents one extreme
   Economy is almost totally dominated by Govt.
   Govt. owns all the property and output equipment
   Closer to middle b/c they are going through an
    economic transition toward privatization
Mixed Economies w/little govt.
intervention & U.S.
Hong Kong
   Represents one of world’s free-est markets
   Private sector is “king”
   Little govt. interference
    Est. wage/price controls on rent and public services
   Mixed economy w/Free-market foundation
   Characterized as a free-market system
   Look @/answer caption on page 43
US Economy
Govt. intervenes in economy by………
   Keeping order
   Providing vital services
   Promoting general welfare
Federal/state laws help protect private property
   Marketplace (place to exchange goods/services)
    operates with limited degree of govt. regulation
Economic Freedom
   Very high level of freedom
   Foreign investment/free trade encouraged
   Banking industry operates under few restrictions
     Foreign banks have fewer restrictions
Lesson Closing
Case Study: Look at Wall Street Video Edition
Look at Essential Questions Video
Complete the following
   Workbook pgs. 16-19
   Pg. 77 (FDA)
When done, finish up any of other workbook
 assigned pages
Grab Ch. 2 Study Guide

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