1. Economic Systems Chapter 2, Section 1
Answering the Three Economic Questions
EQ: How do different economic systems answer the three economic questions?

2. The Economic System
A system in which the society decides to produce & distribute goods & services

3. 3 Economic Questions How to produce What to produce
For whom to produce

4. Economic Goals
Different societies answer the three economic questions based on the importance they attach to various economic goals.

5. The Four Types of Economies

6. Traditional
Relies on habit, custom or ritual in answering the Three Key Econ questions

7. Free Market
All decisions are made by the individual & are based on exchange or trade

8. Command /Centrally Planned
The gov’t alone decides how to answer the Three Key Econ questions

9. Mixed
A market-based econ in which the gov’t plays a limited role

11. How do they differ?
In the way each system answers the production and distribution questions

12. Factor Payments Income for supplying factors of production.
Why isn’t everyone paid the same?
Society values resources & products differently.
The Doctor v. garbage man

13. Safety Nets Why would a gov’t create & provide these programs?
To fulfill the goal of economic security and predictability for it’s citizens

14. 1. For whom is this good produced?

15. Quiz?!!!! Give One Example for Each of the Following.
Traditional Economy
Command Economy
Market Economy
Mixed Economy
Amish
Cuba
United States

16. Economic Systems Chapter 2
The Free Market Economy
Section 2
EQ: What are the two markets within a free market economy?

17. Specialization & Efficiency
Allows one to focus on a particular task & not worry about basic needs at the same time
More efficient

18. Factor market v. Product Market
Provides goods & services necessary to produce more goods & services
Product Market
Finished goods & services to consumers

19. Profit
A financial gain made in a transaction

20. Households & Firms & the Market Econ
What’s their role?
Household
Provide factors of production in factor market & buying power in the product market

21. Households & Firms & the Market Econ
What’s their role?
Firms
Buyers of factors of production & suppliers of goods & services

22. The Benefit of Competition
Competition means firms produce goods/services of high quality & sell at low prices

23. Adam Smith’s “Invisible Hand”; Its Effect on the Market Place
Consumer self-interest & firms competing naturally lead to an econ that consumers can buy goods/services at reasonable prices

24. The Incentive & Consumer Sovereignty Relationship
The consumer chooses what to buy, thus exerts control over what is produced by creating an incentive for firms to produce the good or service

25. Quiz?!!!

26. Economic Systems Chapter 2
Centrally Planned Economies
Section 3

27. Socialism v. Communism Socialism
Gov’t often owns major industries it deems vital to the nation
Can be achieved through democracy

28. Socialism v. Communism Communism
All economic & political power is controlled by the central gov’t
Often authoritarian

29. The Authoritarian Government
What are the characteristics?
Strongly centralized
Demand strict obedience
Disallow individuals freedom of judgment & action

30. Soviet Collectives & Incentives
Offer little incentive
farmer paid a set wage
told what to produce
why produce more or produce efficiently?

31. Soviet Heavy Industry & Opportunity Cost
What did it cost?
The Soviets lacked adequate consumer goods and services

32. Quiz?!!! Which of the following would be difficult to achieve in a command economy?
Economic efficiency
Economic security & predictability
Economic equality
Economic growth & innovation
THE ANSWER
Economic efficiency
Economic growth & innovation

33. Economic Systems Chapter 2
Modern Economies
Section 4
3 Slides

34. Laissez-faire What is it?
A doctrine that states that a gov’t should not intervene in the marketplace

35. Transition to Free Enterprise
Some centrally planned nations are shifting to free enterprise to keep pace with the evolving global economy

36. Privatizing and a Centrally Planned Economy
Privatizing is slow due to there being few enterprises or businesses exist
No one there to take over

37. Quiz?!!!!! US Free Enterprise v. Other Economic Systems
What’s the difference?
Freedoms
The individual not the gov’t make econ decisions