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What are the three Economic Questions? Students will compare the major economic systems in the world and examine their ability to provide citizens with.

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Presentation on theme: "What are the three Economic Questions? Students will compare the major economic systems in the world and examine their ability to provide citizens with."— 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 shelter Basic Needs- food, clothing and shelter Problems in Modern Societies- Problems 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 capital Although there are countless ways to create all the things we want and need, all require land, labor and capital The factors of production can be combined in different ways The factors of production can be combined in different ways Should we produce electricity with oil, solar power, nuclear, water or coal? Should we produce electricity with oil, solar power, nuclear, water or coal? Should teachers have 20 or 50 students in a class? Should teachers have 20 or 50 students in a class?

5 Who consumes these goods and services? How do we distribute abundance? How do we distribute abundance? Who gets to eat a balanced diet and who doesnt?Who gets to eat a balanced diet and who doesnt? Who get to buy a luxury car and who cant afford one?Who get to buy a luxury car and who cant afford one? Who lives in a mansion and who lives in the projects?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.Factor payments- the income people receive for supplying factors of production- land, labor, capital and entrepreneurship. 1. Examples Who 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 Economy 1. Economic efficiency- 1. Economic efficiency- Making the most of your resources, an economy that cant deliver goods isnt efficient. 2. Economic freedom- 2. Economic freedom- Freedom from government intervention in the production and distribution of goods and services 3. Economic security and predictability- 3. 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 Economy 4. Safety Net- 4. Safety Net- government programs that protect people during bad economic times. Examples- 5. Economic equity- 5. Economic equity- How much should you get paid for your services or lack of services. 6. Economic growth and innovation- 6. Economic growth and innovation- Innovation leads to economic growth, and economic growth leads to a higher standard of living. 7. Value goals- 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. Definition- economy based on private ownership were individuals control the production, distribution and sale of goods. Key Person: Adam Smith- Wealth of Nations Key Person: Adam Smith- Wealth of Nations Why do markets exist? 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- Economic System- the method used by a society to produce and distribute goods and services. Three Economics Systems Three Economics Systems 1. Capitalism 2. Command 3. 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. 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. Self-interest- Competition- Producers in a free market struggle for the dollars of consumers this is the regulating force of 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.Invisible hand- The interaction of buyers and sellers, motivated by self-interest and regulated by competition, all happens without a central plan. Invisible hand- Invisible hand-

11 The Principles of Free Enterprise 1. Profit Motive The drive for the improvement of material well-being. 2. Open opportunity The ability for anyone to compete in the marketplace. 3. Legal equality Equal rights to all. 4. Private property rights The right to control your possessions as you wish. 5. Free contract The right to decide what agreements in which you want to take part. 6. Voluntary exchange The right to decide what and when you want to buy and sell a product. 7. Competition The rivalry among sellers to attract consumers.

12 Market Economy- Strengths Economic Efficiency- as a self regulating system Capitalism is very efficient Economic Efficiency- as a self regulating system Capitalism is very efficient Economic Growth- Free market encourages innovation which leads to growth Economic Growth- Free market encourages innovation which leads to growth Economic Freedom- offers the most economic freedom Economic Freedom- offers the most economic freedom Additional Goals- offers the largest variety of goods and services Additional Goals- offers the largest variety of goods and services

13 Market Economy- Weaknesses Freedom to starve, wealth is unevenly distributed Freedom to starve, wealth is unevenly distributed Freedom to starve Freedom to starve NO equity or fairness NO equity or fairness NO motive to help the poor NO motive to help the poor Greed for profit can result in dangerous goods being provided Greed for profit can result in dangerous goods being provided Poor Product safety Poor Product safety

14 Command Economy Definition- the government owns both land and capital. The government decides what to produce, how much to produce, and how much to charge. Definition- 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 Key Person- Karl Marx: Communist Manifesto Two types of Command Economies- Two types of Command Economies- 1. 1. (Welfare Card) 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) 1. Socialism- 2. Communism- 2. 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)Hammer and Sickle)

15 Centrally Planned System Agriculture- the government created large state-owned farms and collectives for most of the countrys agricultural production. Agriculture- the government created large state-owned farms and collectives for most of the countrys agricultural production. Industry- planners favored heavy-industry production (such as steel and machinery), over the production of consumer goods. 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 Consumers- Consumer goods are scarce and usually of poor quality

16 Centrally Planned Strength- Everyone knows what the plan is and is focused on completing that plan. Strength- Everyone knows what the plan is and is focused on completing that plan. Weaknesses- 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 change 4. No worker incentives

17 Mixed Economies Definition- 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. Definition- 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 Intervention Give Three Examples of Positive Government Intervention1.2.3.


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