1. Economic Systems & Decision Making
Chapter 2
Economics
Bennett

2. Economic Systems (Organized way in which a society provides for the wants & needs of its people)
Traditional Economies
the allocation of scarce resources, and nearly all other economic activity, stems from ritual, habit or custom.
Command Economies
are economies in which a central authority makes most of WHAT, HOW, and FOR WHOM decisions. Economic decisions are made by the government.
Market Economies
People and firms act in their own best interests to answer the WHAT, HOW, and FOR WHOM questions.

3. Economic Systems Activity
Please open your textbook to page 34 (goes thru page 41)
You, along with a partner, need to list the advantages & disadvantages of each Economic System: (first page of Ch. 2 packet)
Traditional
Command
Market
Also, where in the world uses these systems today?

4. Mixed Economies or Modified Free Enterprise Economy
Most economies in the world today feature some mix of traditional, command, and market economies.
The United States has a combination of command (planned) and market economies
We have a market (free enterprise) economy with some government intervention
Thus our textbook calls it a Modified Free Enterprise

5. Which Letter is the U.S. Economy?

6. Economic & Social Goals
Economic Freedom – freedom to make your own economic decisions
Economic Efficiency – benefits gained must be greater than costs incurred
Economic Equity – a strong sense of justice, impartiality, and fairness

7. Economic & Social Goals cont.
Economic Security – protection from adverse economic events as layoffs and illnesses
Full Employment – to produce as many jobs as possible
Price Stability – steady prices, void of inflation
Economic Growth – to meet the needs of population growth

8. Free Enterprise Capitalism
In a Capitalistic Economic System individuals own most of the factors of production. This economic system exists due to free enterprise.
In a free enterprise economy, competition is allowed to flourish with a minimum of governmental interference.

9. Major Features of Capitalism
Economic Freedom
Voluntary Exchange
Private Property Rights
Profit Motive
Competition

10. Characteristics of Free Enterprise Capitalism
Economic Freedom allows individuals and businesses to choose their economic destiny.
A Voluntary Exchange happens when both parties benefit from the transaction.
The privilege that entitles people to own and control their possessions as they wish is known as Private Property Rights.

11. Characteristics of Free Enterprise Capitalism
Profit is the extent to which persons or organizations are better off at the end of a period than they were at the beginning.
Profit motive is the driving force that encourages people and organizations to improve their material well being.
The result of Competition is that goods and services are produced at the lowest possible cost and allocated to those who are willing and able to pay for them.

12. The Role of the Entrepreneur
The entrepreneur is one of the most important people in a free enterprise (capitalistic) economy.
The entrepreneur organizes and manages land, labor, and capital in order to seek the reward called profit.
In other words – Entrepreneurs make things happen.

13. The Role of the Consumer
Consumers play an important role in the American Free Enterprise economy.
They control what is produced when they express their wants through purchasing goods and services.

14. The Role of Government
Protector – The government protects property rights and enforces contracts to ensure an efficient and fair economy.
Provider & Consumer – Federal, State and Local governments provide goods and services for citizens. In the process of providing, government consumes factors of production.
Regulator – The national government is charged with preserving competition. Local and state governments control businesses with zoning regulations, taxes, insurance rates, etc.

15. Modified Free Enterprise
Perhaps an unintended consequence of government’s role as protector, provider, regulator, and consumer, is the emergence of the mixed, or modified free enterprise economy.
In this economy, people and businesses, carry on their economic affairs freely, but they are subject to some governmental intervention and regulation.