1. Economic Systems and Decision Making
Chapter Two

2. Economic Systems
What would your business have to do conduct business in a foreign country?
Take a few minutes to discuss and share

3. Economic Systems What is an Economic System? Traditional Command
All societies have them.
An organized way of providing for the wants and needs of the people.
Four kinds:
Traditional
Command
Market
Mixed

4. Traditional
-All economic activity stems from ritual, habit, or custom.
-Roles are defined by customs of elders and ancestors.
-All know their place.
Command
-Central authority makes the major decisions about what, how, and for whom to produce.
-Headed by any leader
-Gov’t makes all econ. Decisions – what to make
-Cannot own homes, limited freedoms,. .
Mixed
-When all three types are combined.
-Socialism – mixed economic and political system.
-Communism – political/economic system where all property is collectively owned.
Market
-People make decisions in their own best interest.
-Great deal of freedom.
-Based on capitalism.
-Businesses are free to find the best production methods.

5. Economic System
Advantages
Disadvantages
Traditional Economy
Command Economy
Market Economy
Mixed Economy

6. Economic System Advantages Disadvantages
Traditional Economy
-All know your role
i.e. hunter, gatherer, farmer, etc.
-Know who you are producing for
-Discourages new ideas/ways of doing things
-Economic stagnation – no progress, lower standard of living
Command Economy
-Can change direction drastically
-Low cost health and human services – trade off?
-Ignore basic wants and needs of consumers
-just filling quotas vs. quality product
-requires a large decision bureaucracy
Market Economy
-Individual freedom
-Adjusts to change
-Little gov’t interference
-Decision making left up to the individual
-Variety of goods and services/satisfaction
-Does not provide for everyone
-May not provide enough of the basic services
-High degree of uncertainty among employees.
Mixed Economy
-Doesn’t leave anyone out
-Higher costs, services limited, low quality

7. Evaluating Economic Performance
Economic and Social Goals
In your groups, discuss how important it is for you to set goals in your life. Why?

8. Evaluating Economic Performance
Economic and Social Goals
We all share broad economic and social goals
All can be categorized in seven economic and social goals

9. Evaluating Economic Performance
Goals:
Economic Freedom
Cornerstone of American society
We place a high value on our freedom to make economic decisions
Occupations, employees, uses for our money

11. Evaluating Economic Performance
Goals:
Economic Efficiency
Resources are scarce
If wasted, fewer goods and services can be produced which leads to fewer needs and wants being satisfied

12. Evaluating Economic Performance
Goals:
Economic Equity
As Americans, we believe in fairness
Equal pay for equal work???
Minimum Wage – Why do we have it?
Illegal advertising
Lemon laws

13. Evaluating Economic Performance
Goals:
Economic Security
Protection from lay-offs or illness, how?
Social Security – Discuss how you think it works…
Medicare – 65 or older

14. Evaluating Economic Performance
Goals:
Full Employment
We all want to work
Cannot support ourselves/families without

15. Evaluating Economic Performance
Goals:
Price Stability
Inflation – more money needed
Everything increases, interest rates, goods/services
Discourages business activity
Fixed income

16. Evaluating Economic Performance
Goals:
Economic Growth
We all have the American dream…better car, house, job
Growth enables more people to have more goods and services
Population growth makes this a necessity!

17. Evaluating Economic Performance
Resolving Trade-Offs Among Goals
Economic system is flexible
Allows for choices, and accommodates compromises
Question – What are some other ways that Americans have modified the free enterprise economy?
Gov’t provides social goods - Schools, police, fire protection
Products such as cigarettes and alcohol – age restrictions

18. American Free Enterprise
The U.S. economy is based on free enterprise
Resources are privately owned, and competition is allowed to flourish without much government interference
Capitalism/free enterprise
Capitalism – private ownership of resources
Free enterprise – unhindered use of privately owned resources to earn profits

19. American Free Enterprise
Characteristics of Free Enterprise Capitalism
Economic Freedom
Individual –
Can choose occupation, employer, job location
Business
Hire best workers
Free to produce products that are most profitable, set prices
Free to risk success or failure

20. American Free Enterprise
Characteristics of Free Enterprise Capitalism
Economic Freedom
Consumer decisions
Classified as:
Habitual
Impulsive
Rational
As a group, come up with three examples each
Then decide which is the most responsible

21. American Free Enterprise
Characteristics of Free Enterprise Capitalism
Voluntary Exchange
Buyers and sellers freely and willingly engaging in market transactions
Buyer = believes product > money given
Seller = believes money > product given

22. American Free Enterprise
Characteristics of Free Enterprise Capitalism
Private Property Rights
Ability to own and control their possessions as they wish
Gives people the incentive to work, save, and invest

23. American Free Enterprise
Characteristics of Free Enterprise Capitalism
Profit Motive
People are free to risk any part of their wealth in a business venture
What is profit/Profit Motive?
When you are better off financially at the end of a specific period then you were at the beginning
Profit motive is the incentive that encourages people and organizations to improve their material well being
Both are very important to the well being of a free enterprise system

24. American Free Enterprise
Characteristics of Free Enterprise Capitalism
Competition
Capitalism thrives on competition, the struggle among sellers to attract competition
Free enterprise capitalism allows competition to flourish
Benefits both producers and consumers, How?

25. American Free Enterprise
The Role of the Entrepreneur, Consumer, and Government
In your groups, describe the roles of the three aforementioned groups
Copy chart into your notes
Use your books to complete the chart
Write all information into your notes

26. Category Specific Role
Entrepreneur
Consumer
Government
Protector –
Provider –
Regulator –
Consumer -

27. American Free Enterprise
Modified Free Enterprise
Sometimes referred to as a mixed economy
Allows for some government intervention/regulation
National defense
System of laws and justice