2. Economic Efficiency No missed opportunities Productive Efficiency
No way to make some people better off without making some people worse off
Productive Efficiency
Operating on the PPC
Full employment of resources
Allocative Efficiency
Consumers as well off as possible
Producing the goods wanted by society
Marginal Benefit = Marginal Cost

3. Economic System
Traditional
Command
Market

4. Basic Questions each system must answer
What is produced?
How is it produced?
For Whom is it produced?

5. Traditional Economies
Economic decisions generally repeat those made in earlier times or by previous generations
Continuity is valued
Native/Primitive societies, Amish

6. Command Economies
Economic decisions are made largely by an authority such as a feudal lord or a government agency.
Planners decide what to produce.
Cuba, North Korea, Fascist Italy, Nazi Germany, Soviet Union, China under Mao

7. Market Economies
Individuals and businesses make the main economic decisions.
Price system serves as the communication system between buyers and sellers.
United States, Western World

8. Economic System
MIXED
Traditional
Command
Market

9. Economic Goals Criteria for Comparing Economic Systems
Goals of the U.S. Economy
Full Employment Act of 1946

10. Economic Growth Increase in the production of goods and services.
Why do we want it
Growing Population
Increase in the Standard of Living
TV’s?
Measure:
GDP – Gross Domestic Product (REAL)
GDP chart (ESBR)
World GDP

11. Increase in Standard of Living “What Americans Need” Pew Research Center
Item
Car % 93%
Clothes Washer 90% 86%
Clothes Dryer 83% 62%
Home Air Conditioning 70% 51%
Microwave 68% 32%
Television 64% 59%
Car Air Conditioning 59% 41%
Home Computer 51% 26%
Cell Phone 49% N.A.
Dishwasher 35% 13%
Cable or Dish TV 33% 17%

13. Standard of Living Item Have it Necessity Television 98% 64%
Car 92% 91%
Microwave 86% 68%
Home Air Conditioning 85% 70%
Clothes Washer 82% 90%
Cable or Dish TV 82% 33%
Clothes Dryer 79% 83%
Cell Phone 74% 49%
Home Computer 73% 51%

14. Full Employment Economy Maximizes use of Labor
Labor resources cannot be “saved”
Jobs/work are the foundation of production and consumption in an economy.
Unemployment Rate
Graph: Unemployment rate (seasonally adjusted)
World unemployment rates

15. Price Level Stability Economy is not subject to fluctuations in prices
Instability leads to Uncertainty
Inflation and Deflation are both bad things
CPI – Consumer Price Index
Graph: Consumer Price Index for All Urban Consumers: U.S.City Average, All Items and All Items Less Food and Energy

16. Economic Freedom Who makes the Economic Decisions? Democratic Ideals
Closely Related to Efficiency and Growth
Rate of Taxation
The Index of Economic Freedom

17. Economic Efficiency Productive Efficiency Allocative Efficiency
Wise use of resources.
Conservation & Productivity
Idle or Wasted
Pollution – Negative externality
Graph: productivity

18. Economic Equity (distribution of income)
Fairness or Justice
What is Equity?
Equal opportunity or
Equal results
Distribution of Wealth
Poverty Rates
Forbes 400
Lorenz Curve

20. Poverty Thresholds 2008
Children
Size of <18
Household 1 2 3
10,991
14,417
14,846
16,841
17,330
17,346 4
22,207
22,570
21,834
21,910 5
26,781
27,170
26,338
25,694 6
30,803
30,925
30,288
29,677

22.
Forbes

23. Economic Security
Citizens have a minimum standard of living that they can reasonably expect.
Government programs
Social Security
Welfare
Unemployment
Health Care
Minimum Wage

24. Balance of Trade
Trade allows countries to benefit from the resources and skills of other countries
Specialization and trade raises standards of living
Trade should be close to balanced

25. Top Trading Partners 2009 (thru Nov)
Country
Exports
Imports
Total
Percent
Canada
186.5
203.6
390.1
16.5
China
61.2
269.9
331.1
14.0
Mexico
117.2
159.5
276.7
11.7
Japan
46.2
86.4
132.7
5.6
Germany
39.3
64.3
103.6
4.4
U.K.
42.0
43.5
85.5
3.6
S. Korea
25.8
35.8
61.7
2.6
France
24.3
31.1
55.4
2.3
Netherlands
29.7
14.8
44.4
1.9
Taiwan
16.4
25.7
42.2
1.8

26. Goals that Work Together
Freedom – Growth
Efficiency – Full Employment
Freedom – Efficiency
Stability – Security
Equity (results) – Security
Equity (opportunity) - Freedom

27. Goals that Conflict Freedom – Security Growth – Stability
Freedom – Stability
Equity (results) – Equity (opportunity)