1. Economic Systems
Chapter 2

2. Scarcity This is a fact of life Three questions
What should be produced?
How should it be produced?
For whom should it be produced?
An economic system is the way a society uses it scarce resources to satisfy it people’s unlimited wants

3. Traditional Economy
An economic system in which people produce and distribute goods according to custom handed down from generation to generation
Survival – main goal – What?
Everyone has a set role – How?
Good of the group not individual – Whom?

4. Command Economy
The government will decide what goods and services will be produced, how it should be produced, and for whom it should be produced.
Individual wants are rarely considered
Current - North Korean and Cuba
Previous – Soviet Union, Poland, East Germany

5. Market Economy
Is an economic system in which individual choice and voluntary exchange direct economic decisions (individual choice)
Consumer and producer drives the economy – What?
Producer (individual-owned enterprises) decide – How?
Self-interest, who can afford them – Whom?

6. Mixed Economy
Economic system that incorporates some governmental involvement into a Market Based Economy
Most Modern Economy

7. Section 1 Assessment Key concept questions 1- 6
Critical Thinking question 9

9. Group Project
In groups, create a poster that shows the three economic questions and how a traditional, command, and market economy answers each of those questions. Arrange the poster in any way but make sure that it contains at least one illustration for each question for each economies

11. Command Economies Members of the central government Government Control
Economic decisions
Centrally planned economy
Government Control
Who
What
How

12. Socialism and Communism
Karl Marx
Social conflict
Industrialist grew richer and workers remain poor
Socialism – government owns some or all of the factors of production

13. Communism – no private ownership of property and little or no political freedom
Authoritarian – absolute obedience to those in power

14. Communism Socialism Market System
Who owns resources?
Government
Government owns basic resources, the rest are privately owned
All resources privately owned
How are resources allocated?
Government planners decide how resources are used
Government planners allocate basic resources; market forces allocate privately-owned resources
Market forces allocate resources
What roles does government play?
Government makes all economic decisions
Government makes decisions in the basic industries
Governments role limited-mostly to ensure market forces are free to work

15. Why is government ownership of the means of production necessary to achieve communist goals?
How are the goals of the socialism met by allowing both government ownership and private ownership of resources?

16. Economic Revolutionary
Traveled many countries
Industrial period
Wage slavery
Social Conflict
Rich gets richer, Poor gets poorer

17. North Korea Communist control
Every economic decision
Nuclear project
Population starvation – scarce of food
Other countries provided food aid
Good for the country and less concentration on the people

18. Impact Government takes care of people
Little concern or knowledge of local conditions
No work motivation
Shortages - long lines waiting to supplies
No individual rights

19. Section 2 Assessment Key Concepts questions 1 – 5
Critical Thinking question 8

20. What advantages and disadvantages did Russians experience with a command economy? With a market economy?
What characteristics of a market economy have contributed to the divide between rich and poor?
Will conditions for the poor likely improve or get worse as market economic factors become more firmly established in Russia? Why?

21. Market Economy
Private Property rights – individuals have the right to own property, resources, and businesses
Property is defined as anything a person can own
Market – any place where people buy and sell goods and services
Exchange private property for someone else’s

22. Limited Government Involvement
The idea that the government should have limited interference with business and economy is called laissez faire
French meaning: “leaving things alone”
This has the same ideals as capitalism
Private ownership – profit
However, the government has some control or involvement

23. Voluntary Exchange in Markets
Voluntary exchange – when the buyer and seller of a product or service is worth more than what they gave up
Desire vs. Profit
Profit is the earning above the amount of original cost

24. Competition and Consumer Sovereignty
In today market, competition, the effort of two or more people, acting independently, to get the business of others by offering the best deal, is vital.
Generics vs. Name Brand
Since the consumer has a choice to purchase what they want, they have the ultimate control of what is produced, Consumer Sovereignty

25. Specialization, focus on the market or area that they know best, is a key component for businesses

26. Circular Flow How does the market economy function
Circular Flow Model – economist visualize how the market flows in an economy
Households - individual use
Businesses
Page 53, figure 2.4

27. Product Market Product Market is the goods and services
Consumer purchase goods and services
Mall, grocery store, department store
Businesses offer the goods and services for sale

28. Factor Market
Businesses purchase the resources they need to produce goods and services
Factor of production
land,
Labor
Capital
Entrepreneurship
Businesses become the customers and the individuals are the producers

29. Circular Flow Model

30. Section 3 page 57 Assessment
Key Concept questions 1- 5
Critical Thinking question 9

31. How has the Constitution shaped the Economic System in the U.S.?
Constitutions are economic documents as well as political documents. This is certainly true of the Constitution of the U.S. Our nation’s founders believed that economic freedom as well as political freedom are essential for national prosperity and growth. Accordingly, they included numerous provisions in the Constitution that support and encourage the operation of a market economy. Thus, as the basic “law of the land,” the U.S. Constitution defines the essential features of our economy.

32. Activities Characteristics of Market economy
Matching Provisions of the U.S. Constitution with Basic characteristic of Market Economy
Economic provisions in the constitution of the People’s Republic of China

33. Preamble to the Constitution
We the people of the United States, in order to form a more perfect Union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution of the United States of America.

34. Modern Economies in a Global Age
Mixed Economy – an economic system that is a combination of a traditional, command, and market economies
Most common in today’s society
United States - example

35. Level of Government
Economist use a math calculation to determine the level or percentage of government involved in an economy.
Page 60, figure 2.5
Share of the economy = Government
consumed by consumption
Total Economy

36. Trends in Modern Economies
In recent history, many countries have been changing their type of market in order bust their economy.
Nationalize – changing from private ownership to government or public ownership
Privatize – moving from a government or public ownership to private ownership

37. Global
To encourage privatize ownership, they should open up their industry to foreign investors
Global economy – economic interactions that cross international boundaries
Buy and sell to foreign markets

38. Market video