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Economic Systems and Decision Making Chapter Two 1.

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Presentation on theme: "Economic Systems and Decision Making Chapter Two 1."— Presentation transcript:

1 Economic Systems and Decision Making Chapter Two 1

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

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

4 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,.. 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. Mixed -When all three types are combined. -Socialism – mixed economic and political system. -Communism – political/economic system where all property is collectively owned.

5 Economic SystemAdvantagesDisadvantages Traditional Economy Command Economy Market Economy Mixed Economy 5

6 Economic SystemAdvantagesDisadvantages 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 6

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

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

9  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 9 Evaluating Economic Performance

10 10

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

12  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 12 Evaluating Economic Performance

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

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

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

16  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! 16 Evaluating Economic Performance

17  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 17 Evaluating Economic Performance

18  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 18 American Free Enterprise

19  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 19 American Free Enterprise

20  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 20 American Free Enterprise

21  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 21 American Free Enterprise

22  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 22 American Free Enterprise

23  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 23 American Free Enterprise

24  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? 24 American Free Enterprise

25  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 25 American Free Enterprise

26 CategorySpecific Role Entrepreneur Consumer Government Protector – Provider – Regulator – Consumer - 26

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


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