Economic Systems WHAT IS ECONOMICS? DOES IT HAVE ANYTHING TO DO WITH YOU?

Economics  The branch of knowledge concerned with production, consumption, and distribution of wealth.

Needs cannot be avoided

Wants

Basic Problem of Economics  Scarcity: Lack of a particular resource (Usually natural resources)  Oil  Water  Timber  Coal  *We Have Unlimited Needs/Wants But Limited Resources

Questions economies MUST answer  What to produce?  How to produce it?  For whom to produce it for?

Types of Economic Systems  Traditional Economy  Based on traditions customs, and beliefs  Grow and make their own goods.  Barter and trade often used to transfer goods rather than money  Almost all goods and services are fully used by the people who produced them.

Command Economy  Command Economy  An economy in which production, investment, prices, and incomes are determined by the central government.  The former Soviet Union is an example.

Market Economy  Decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.  INDIVIDUALS make all the economic decisions  INDIVIDUALS own the means of production

Free Markets  Freedom to…  Compete  Own Property  Buy and Sell  Workers to compete for jobs  Profits : money a business has left after it has paid expenses.

Supply and Demand Demand  Amount of goods/services consumers are willing and able to buy at various prices.  Buyers demand more when prices are low Supply  Amount of goods/services producers are willing to sell at various prices.  Businesses will produce more when they can sell for higher prices.

To increase profit…  Businesses have to find the highest price customers are willing to pay for a good or service.

Capitalism  Economic System in which the productive resources (farms, factories, machines, etc.) are owned by private citizens.

The U.S. Economic System  Mixed Economy- We mix elements from different economic systems.  Government regulation of business and enterprise  Wage and labor laws  Environmental Protection/Regulation

Monopoly  A company that is the only one selling a product or providing a service.  Disrupts the free market system by eliminating competition.

American Business  Economics of Scale: The ability of large companies to produce many goods efficiently.  Bigger is better.  Apple

 Conglomerate - A merger of business that produce, supply, or sell a number of unrelated goods.

Social Goals of Economic Systems  Economic Efficiency: How well scarce resources are used to produce goods to people for as little cost as possible.

Economic Equality  What is “fair?” Economic actions and policies have to be evaluated based on what people think is right or wrong.  Distribution of income and wealth.  Providing equal opportunity

Economic Freedom  Freedom for consumers o decide to spend or save their money.  Freedom for workers to change jobs and join unions  Freedom of individuals to establish new businesses or close old ones.

Economic Growth  Increasing production of goods and services over time.

Economic Security  Refers to protecting consumers, producers, and resource owners from risks that exist in society.  What should be protected.  Who should be protected  How do we pay for protection

Economic Stability  Maintaining stable prices and full employment and keeping growth smooth and steady.  Avoid inflation or deflation of money.

Broad Social Goals of Economic Systems Economic Efficiency: How well scarce resources are used to produce goods to people for as little cost as possible.

Political Cartoon Break!!!

Berkshire Hathaway

Homework!  Command vs. Market Economy