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Ch. 2: Economic Systems S1: Answering the 3 Economic Questions

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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

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