Presentation on theme: "What are the three Economic Questions?"— Presentation transcript:
1 What are the three Economic Questions? Students will compare the major economic systems in the world and examine their ability to provide citizens with social and economic freedoms.
2 The Three Basic Economic Questions 1. What goods and services should be produced?2. How should these goods and services be produced?3. Who consumes these goods and services?
3 What goods and services should be produced? Basic Needs- food, clothing and shelterProblems in Modern Societies-- How many resources do we devote to national defense, education, public health, welfare, consumer goods?- What consumer goods should we produce?
4 How should these goods and services be produced? Although there are countless ways to create all the things we want and need, all require land, labor and capitalThe factors of production can be combined in different waysShould we produce electricity with oil, solar power, nuclear, water or coal?Should teachers have 20 or 50 students in a class?
5 Who consumes these goods and services? How do we distribute abundance?Who gets to eat a balanced diet and who doesn’t?Who get to buy a luxury car and who can’t afford one?Who lives in a mansion and who lives in the projects?Factor payments- the income people receive for supplying factors of production- land, labor, capital and entrepreneurship.1. ExamplesWho gets what, is the key difference between economic systems today. Every society answers this questions based on their social goals and values
6 The 7 Goals of an Economy1. Economic efficiency- Making the most of your resources, an economy that can’t deliver goods isn’t efficient.2. Economic freedom- Freedom from government intervention in the production and distribution of goods and services3. Economic security and predictability- Assurance that goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster
7 The 7 Goals of an Economy4. Safety Net- government programs that protect people during bad economic times.Examples-5. Economic equity- How much should you get paid for your services or lack of services.6. Economic growth and innovation- Innovation leads to economic growth, and economic growth leads to a higher standard of living.7. Value goals- Societies pursue additional goals, such as environmental protection, universal medical care, etc…
8 Market Economy (Capitalism) Definition- economy based on private ownership were individuals control the production, distribution and sale of goods.Key Person: Adam Smith- “Wealth of Nations”Why do markets exist?1. Markets exist because none of us produces all the goods and services we require to satisfy our needs and wants.How is money and goods exchanged in a Free Market?1. In a free market economy, households and business firms use markets to exchange money and products. Households own the factors of production and consume goods and services.
9 Economic Goals of a Society Economic System- the method used by a society to produce and distribute goods and services.Three Economics Systems1. Capitalism2. Command3. Mixed Economy
10 The Forces in a Free Market Self-interest- In every transaction, the buyer and seller consider only their own personal gain. Self-interest is the motivating force in the free market.Competition- Producers in a free market struggle for the dollars of consumers this is the regulating force of the free market.“Invisible hand”- The interaction of buyers and sellers, motivated by self-interest and regulated by competition, all happens without a central plan.
11 The Principles of Free Enterprise 5. Free contractThe right to decide what agreements in which you want to take part.6. Voluntary exchangeThe right to decide what and when you want to buy and sell a product.7. CompetitionThe rivalry among sellers to attract consumers.1. Profit MotiveThe drive for the improvement of material well-being.2. Open opportunityThe ability for anyone to compete in the marketplace.3. Legal equalityEqual rights to all.4. Private property rightsThe right to control your possessions as you wish.
12 Market Economy- Strengths Economic Efficiency- as a self regulating system Capitalism is very efficientEconomic Growth- Free market encourages innovation which leads to growthEconomic Freedom- offers the most economic freedomAdditional Goals- offers the largest variety of goods and services
13 Market Economy- Weaknesses “Freedom” to starve, wealth is unevenly distributedNO equity or fairnessNO motive to help the poorGreed for profit can result in dangerous goods being providedPoor Product safety
14 Command EconomyDefinition- the government owns both land and capital. The government decides what to produce, how much to produce, and how much to charge.Key Person- Karl Marx: “Communist Manifesto”Two types of Command Economies-1. Socialism- is a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society. (Welfare Card)2. Communism- is a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the government. (Hammer and Sickle)
15 Centrally Planned System Agriculture- the government created large state-owned farms and collectives for most of the country’s agricultural production.Industry- planners favored heavy-industry production (such as steel and machinery), over the production of consumer goods.Consumers- Consumer goods are scarce and usually of poor quality
16 Centrally PlannedStrength- Everyone knows what the plan is and is focused on completing that plan.Weaknesses-1. Unable to pull this off in a modern country (countries are too big).2. Inefficient and leads to shortages of needed items- but a surplus of non-essential items. (Underutilization)3. Responds slowly to change4. No worker incentives
17 Give Three Examples of Positive Government Intervention Mixed EconomiesDefinition- an economy that is a mixture of both command and market economies. There are no pure forms of either, most countries have some government intervention.Give Three Examples of Positive Government Intervention1.2.3.