1. Ch. 2: Economic Systems S1: Answering the 3 Economic Questions
S2: The Free Market
S3: Centrally Planned Economies
S4: Mixed Economies

2. 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

3. 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

4. Introduction 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 societies
A societies values, such as freedom or tradition, guide the type of economic system they will have

5. 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

6. 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
Land
Labor
Capital : human/physical
Look at Figure 2.1 on pg. 24 (read/answer TPS)
What does each choice involve?
Trade-offs

7. Question 3 Who consumes goods/services?
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

8. Economic Goals
Efficiency
Freedom
Security
Equity
Growth

9. 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 efficiency

10. Economic freedom and security
Some societies limit the economic freedoms of its people
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

11. 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 goals?”
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 success

12. Finish 1.1 BW
Complete pg. 13
Exploration; Both A and B

13. 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 importance)
Each choice comes with some kind of trade-off

14. 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 needs
Often lack modern conveniences
Lower standards of living

15. Lesson Closing HW and some of BW tomorrow Page 55 Read Section 2
Evaluating U.S. Economy
Read Section 2
Complete ALL of SECT 1 GUIDED READING/REVIEW
Get started on Sect. 2 GUIDED READING/REVIEW
Fill in S1 Chart on top of notes.

16. 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

17. Chapter 2 : Section 2
“What are the characteristics of a free-market economy?” write on top of notes
Objectives
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

18. Introduction What are the characteristics of Free-market economy?
Characterized by…..
Households and firms
Factor and product markets
Self-interest
Competition
Economic freedom, efficiency, and equity

19. 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 want
Money for goods/services in most cases
Lead to specialization
Rather than self-sufficiency, we specialize in a few products/services
Leads to efficient use of 3 factors of production
Allows businesses to focus on limited number of related products/services
Markets are needs as an arena to buy/sell products

20. Free market economy
3 ?s answered by voluntary exchanges in Marketplace
Individuals choose
What gets made
How it is made
How much people can consume of good/service
Individuals/Private businesses own factors of production
Look at figure 2.2 pg. 31
Need to understand what each sector provides one another
Answer two questions…. TPS

22. 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 produces
Checkpoint:
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

23. Self Regulation Wealth of Nations Regulations
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
Regulations
Self-interest is the motivating force in the free-market
Consumers pursue their self-interest by looking for lower/lowest prices

24. Self-Regulation Competition
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”

25. 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

26. Answer the Question to caption on pg. 32

27. Lesson Closing Workbook
Pg. 14
Pg. 63
Quick Video over Market Vs. Command System: DONE HW
Read Section 3
Finish up pg. 63 Activity

28. Chapter 2 Section 3 Get books/folders Finish up Pg. 63 from workbook
Copy down chart from section 3

29. 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

30. Introduction What are characteristics of a centrally planned economy?
The Government answers the 3 economic questions
Govt. owns factors of production
Opposition to private property, free-market pricing, competition, and consumer choice

31. How Central (command) Works
Govt., rather than indiv’s answers key economic ?s
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
Free-pricing
Competition
Consumer choice

32. Socialism vs. communism
Wealth distribution
Equity only thru govt. or public ownership
Market Socialism is a combo where govt. uses taxes to help
Socialism
Govt. controls all resources/means of production
Capitalism is exploitation of workers for few
Communism

33. 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 ( s)
Govt. controlled all aspects of Chinese economy
Took over farming too, forced people into farming communities
Led to shortages form decreased farm production
Eased control in 70s of most aspects
More economic freedom has allowed China to grow

34. Disadvantages of Planned
Often have trouble meeting the basic economic goals
Decreases efficiency, poorly adjustable to market changes
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

35. Lesson closing Read Socialism in classroom Complete
What do you think would happen in this classroom
In other classroom that may be different than this room
TPS on some good/bad things that a planned/control economy may offer
Complete
Workbooks
Pg. 71: comparing soc/comm.
Pg. 15

36. Chapter 2 Section 4 BW Grab books/folders
Finish any of pg. 71 in workbooks
Copy chart on pg. 39

37. 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

38. Introduction 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

39. 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 needs
Nat’l Defense, public education
Protect private property
Ensure fairness of exchanges in marketplace

40. 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

42. 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
China
Closer to middle b/c they are going through an economic transition toward privatization

43. 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
U.S.
Mixed economy w/Free-market foundation
Characterized as a free-market system
caption on page 43

44. 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

45. Lesson Closing Case Study: Look at Wall Street Video Edition
Look at Essential Questions Video
Complete the following
Workbook pgs
Pg. 77 (FDA)
When done, finish up any of other workbook assigned pages
Grab Ch. 2 Study Guide