1. Chapter 2
Economic Systems

2. Section 1: ANSWERING THE economic Questions
Objectives:
Identify the key economic questions that all societies must answer.
Analyze societal values that determine how a country answer the 3 economic questions.
Define the characteristics of a traditional economy.

3. 3 Key economic questions
What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?

4. Economic Systems
Economic systems: structure of methods and principles that a society uses to produce and distribute goods and services
5 minutes: What goods should we produce? How should we produce them? Who should come consume them?
Topic: Food

5. What goods should we produce? (food)

6. How should we produce them? (food)

7. Who should consume them? (food)

8. What goods and services should be produced?
Determined by society

9. How should goods and services be produced?
Determined by society
Determined by the factors of production

10. Who consumes goods and services?
Society
Factor payments: income people receive in return for supplying factors of production
Profits

11. Economic Goals and Values
1. Economic Efficiency – uses factors of production the best way possible
2. Economic Freedom
3. Economic Security
Safety nets – set of programs to protect people from unfavorable economic conditions
4. Economic Equity – dividing the economic pie
5. Economic Growth
Standard of living – level of economic prosperity
Innovation – new methods and ideas

12. Who Consumes What Is Produced?
Economic Goal or Value
What to Produce?
How to Produce It?
Who Consumes What Is Produced?
Efficiency
The economy produces goods it can make efficiently and trades for others. 1. 2.
Freedom
Businesses decide what to produce. 3. 4.
Security 5. 6.
Some social programs, such as food stamps and housing subsidies, try to ensure that people will be able to meet basic needs.
Equity 7.
Businesses pay workers what the market will bear. 8.
Growth 9.
10.
Rising consumer spending helps the economy grow.

13. What are the strengths and weaknesses of the us economy?

14. Essay
All societies have goals for their economy, but they value they value these goals differently. Five important economic goals that all societies pursue to some degree are efficiency, freedom, security, equity, and growth. Others may include environmental protection or protecting national industries.
Think about what goals are most important to you and rank them. Write an essay in which you explain why the United States economy should focus on the goals you identified as the most important. Think about how Americans would benefit in the economy emphasized the goal you think is most important. Think about the effect that promoting the top two or three goals would have on the economy. In your essay identify how the US may be meeting these goals, and what the country could do to improve upon them.
Introduction (1), point/counter-point/point (2), closing (1)
ATTENTION GRABBER, BACKGROUND INFORMATION, THESIS STATEMENT

15. How can innovation lead to economic growth?

16. R
Describe another technological innovation that lead to the creation of new goods and services.

17. Think about it. Apply it.
A company has created a computerized robot that can triple the production of prepackaged foods.
Each robot can triple the production of prepackaged foods.
Each robot can be operated by a single technician and takes the place of 10 workers.
Use of the robot reduced the price of each can by 10%.
The robots are operated by electricity.
The increased production and sale of canned foods increases the amount of plastic garbage by 3%.

18. Economic Goals and Societal Values
Look the list of economic goals and societal values.
Which society is best equipped to change and grow?
In which society is it easiest to achieve economic equity?
Which society offers individuals that most freedom to make their own economic decisions?
Types of societies: Modern industrial or traditional
Goals ad values: economic efficiency, economic freedom, economic security, economic equity, economic growth

19. How would you react? Why would you react way?
1. Government economist
2. Factory owner
3. Skilled factory worker
4. Unskilled factory worker
5. Head of a labor union
6. President of a technical training school
7. Environmental activist
8. Head of a consumer organization

20. Traditional Economy The oldest and simplest economic system
Relies on habit, custom, and ritual
Little room for innovation or change
Revolves around the family unit

21. Section 2: THE FREE MARKET
Objectives:
Explain why markets exist.
Analyze a circular flow model of a free market economy.
Describe the self-regulating nature of the marketplace.
Identify the advanagtes of the free market economy.

22. Write down 3 goods or services on a separate sheet of paper.
Tell me what they are.
Trade your goods and services for another good or service that someone else has.
Is this a market?

23. Why Markets exist Farmers market, malls, eBay etc.
Market: arrangement that allows buyers and sellers to exchange things
Specialization – the concentration of the productive efforts of individuals and businesses on a limited number of activities

24. Free market Economy
3 economic questions are made by voluntary exchange
Individuals and businesses make their own decisions
Own the factors of production
Make what they want
Buy what they want

25. Households - person or group of people living in a single residence
Firms – an organization that uses resources to produce a product or service, which it then sells
Factor Market – where firms purchase from households
Product market – where households purchase from firms

26. Factor AND PRODUCT MARKETS

28. The self-regulating nature of the marketplace
“Give me that which I want, and you
shall have this which you want it is
in this manner that we obtain from one
another the far greater part of those good
[services] which we stand in need of. It is
not from the benevolence of the butcher,
the brewer, or the baker that we expect
our dinner, but from their regard to their
own interest.” —Adam Smith, The Wealth of Nations

29. The self-regulating nature of the marketplace
Self-interest
Competition
The invisible hand

31. The Advantages of the free market
1. Economic efficiency
2. Economic freedom
3. Economic growth
4. Additional goals
Consumer sovereignty – power of the consumer to decide what gets produced

32. Computer manufacturer
Firm
Resources Purchased in Factor Market
Goods or Services Sold in Product Market
Pizza shop
Rent for space
Electricity for cooking and lighting
Gasoline for deliveries
Ingredients for food
Wages for cooks 1.
Car manufacturer
Rent for factory and offices
Wages for workers 2.
Cars
Trucks
Health clinic 3. 4.
Hair salon 5. 6.
Computer manufacturer 7. 8.

33. Section 3: Centrally Planned Economies
Objectives:
Describe how a centrally planned economy is organized.
Distinguish between socialism and communism.
Analyze the use of central planning in the Soviet Union and China.
Identify the disadvantages of a centrally planned economy..

34. Central Planning Government answers the 3 economic questions
Government owns both land and capital
Command economy – centrally planned economies
Direct contrast to free market systems
“Closed lunches” at school

35. Buyer 1 - $50 Seller 1 - $50 Buyer 2 - $25 Seller 2 - $25 Buyer 3 - $10 Seller 3 - $10 Buyer 4 - $5 Seller 4 - $5

36. You must buy supplies in order to draw a picture of your product
Paper $2
Pencil $1
5 colored pencils $10
Colored paper $20
Scissors $3
Gluesticks $5
Paint $20
Paint brush $8

37. The government orders that all video game designers must devote half of their time and resources to creating educational games.
Would a government of a nation with a free market issue such and order? Why or why not?

38. Command Economies
EX: Uniforms for members of military vs. production of sweaters for consumers
1. The top planners decide that more military uniforms than sweaters will be made. They send this decision to the materials committee.
2. Knowing how much cotton is available, the materials committee decides how many uniforms and sweaters to produce. They send their decision to the makers of cotton, buttons, and elastic.
3. The cotton, the buttons, and the elastic arrive at the factories, where they are used to make uniforms and sweaters.

39. Socialism and communism
Socialism – a range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society
Communism – a political system in which the government owns and controls all resources and means of production and makes all economic decisions