1. Economic Questions and Economic Systems
2.1
Economic Questions and Economic Systems

2. Objectives
Identify the three questions that all economic systems must answer
Describe how the three basic economic questions are answered by the different economic systems, and identify their problems.

3. 1. Which factors influence economic decisions made in your school?
Intro:
1. Which factors influence economic decisions made in your school?
2. Who makes these decisions?
3. What are these decisions based on?

4. economic system
Set of mechanisms and institutions that resolves or decides the
What
How
For whom

5. Market Means by which ppl buy and sell something
Types of markets – how do we best answer the 3 economic questions?

6. 3 Econ. Questions answered according to :
1. Who owns the resources
2. What decision making process is used to allocate resources or products.
3. What types of incentives guide economic decision makers.
Incentive -Something that encourages you to behave in a particular way.

7. Traditional Market Economy
Based on custom and/or religion
Family determines your job
US today – still some jobs are “male” and “female”
Inuit

8. The Market Economy

9. Pure Market Economy aka Capitalism
Private (individual) ownership of all resources, no public (gov) involvement

10. Public Goods: owned by gov
Provided for all (via taxes)
National Defense / military
Park
Schools

11. Owners make all economic decisions -
What to produce?
Whatever will make a profit!
How?
Cheapest way possible!
For whom?
Those who are willing & able to buy it – consumer goods

12. Capitalism Adam Smith writes of this in 1776
“Invisible Hand” guides the economy w/o any regulation / gov controls
Competition drives market: make the best product at cheapest price, ppl will buy it & you’ll make profit!
No one says: you should charge $1 for your cheeseburger – the market decides the price!

13. Selfish?!
Making rational self-interested decisions benefit all of society
Why do employers give raises?
Why do items go on sale?
Self-interest:
(Adam Smith) – Impulse that encourages you to behave in a particular way.

14. Is capitalism good?
Advantages:
Disadvantages: p

15. Capitalism
ADV  : owners make $, make goods consumers want, prices stay low so ppl will buy them
DIS  : labor = cheap & expendable, monopoly (1 person owns an entire sector of industry), no public (gov) services, externalities (affect third parties) pollution

16. Check Point
Identify the three questions that all economic systems must answer
Describe the pure market economy, and identify its problems.