1. The American Economic System
Basic Economic Unit Part II

2. Types of Economic Systems

3. Traditional Characteristics: How answer the economic questions?
Little Change
Based on Custom
How answer the economic questions?
How they always have

4. Command Characteristics How answer the economic questions?
Government controls means of production
Little individual influence
Communism & Socialism
How answer the economic questions?
Government does

5. Socialism
Gov. owns some factors of production and distributes products and wages

6. Communism
Socialism under the dictatorship of the communist party

7. Market Characteristics: How questions answered?
Private individuals control the factors of production
Individual freedom
How questions answered?
By businesses and consumers

8. Mixed Characteristics: How are questions answered?
Some individual freedom some government control
How are questions answered?
Individuals do but have some government intervention

10. All economies are actually mixed
All economies are actually mixed. What determines whether an economy is considered market or command depends on the level of
Government involvement.

12. Who developed the principles of a market economy?
Adam Smith

13. What was the Wealth of Nations?
Smith’s book that explained the principles of Capitalism

14. What did Smith mean by Laissez-faire economics?
“To let alone”
Government should stay out of marketplace except to ensure competition

15. The Invisible Hand
Belief that individuals on their own would work for own self-interest
Would be guided by “invisible hand” to use resources efficiently

19. Characteristics of Market/Free Enterprise System
Little or no government intervention – governments role in econ. is to ensure competition
Free Enterprise – Competition with little gov. interference
Freedom of Choice – individuals can choose what work to do and what we buy

20. Characteristics Continued
Private Property – right to own and use our property as we choose within certain legal limits
Profit Incentive – the driving force of capitalism, the ability to accumulate wealth
Competition – the struggle between buyers and sellers to get the best products at lowest prices

21. What does the Circular Flow Model illustrate?
How resources, goods and services, and money flow in a circular pattern

22. Market
The exchange of goods and services between buyers and sellers

23. Factor Market
Where productive resources (the factors of production) are bought and sold

24. Product Market
Market where goods and services (finished products) are offered for sale

25. What happens when less is exchanged in the circular flow?
The economy shrinks, productivity goes down

26. What happens when more is exchanged?
Economy grows, productivity increases

27. What is productivity?
The amount of output that can be produced by a set amount of resources in a given period of time

28. Productivity
Goes up when can produce the same amount of output in less time Or
When can produce more output with same amount of resources in same time

29. Increasing Productivity
Specialization when people, businesses or countries focus on what they do best
Division of Labor breaking down of a job into small parts performed by different workers
Investing in Human Capital spending to improve worker skills

30. What do these practices create between individuals, communities and nations?
Economic Interdependence creates dependence between people for goods and services