1. Warmup: On a piece of scratch paper, write 2 numbers.
The first number is the annual salary at which you believe you can live comfortably (how you want to live)
The second number is the amount of money you believe you need to have saved for retirement.

2. Wealth

3. Goals of the Economy What do we want?
Why do some economic systems perform better than others?

4. Scarcity Unlimited wants, limited resources
Nations face this just as individuals do!
Important to differentiate between scarcity – something there is not much of
And Economic Scarcity – there is not as much as we deisre
What is scarce? Factors of production – resources, time, money

5. Economic Systems Determine
What will be produced?
How will it be produced?
For whom will it be produced?

6. Market Economic Systems
Capitalism: means of production and distribution are privately owned.
Voluntary exchange
Market determined price
Consumers determine what
Producers determine how
Market determines for whom

7. Broad Goals of an Economic System
Economic Efficiency (max value, min waste)
Economic Equity (fairness)
Anti-discrimination laws
Lemon laws
Economic Freedom
Fraser Economic Freedom of the World Index
Heritage Inst & WSJ Freedom Index
Taxation, property rights, business & trade regulations
2. Equity: Gini Index (higher #, less equality) – Income equality – Equality in outcome v equality in rights
Japan more ~25, Germany 30; Chine 40’ US 41; Russia 48
3. EFW: 141 countries, 95% world pop, 42 govt policies;
Econ Freedoms are a prerequisite for econ growth & devlpmt
Size of government and taxation
Private property and the rule of law
Soundness of money
Trade regulation and tariffs
Regulation of business, labour and capital markets
(Economic Freedom Increases prosperity for all,Reduces poverty ,Increases other freedoms,Improves quality of life)

8. Economic Freedom Index The Top 10
Source: The Fraser Institute.

9. Income per person of the Top 10 on the Economic Freedom Index
Sources: The Fraser Institute; The World Bank, World Development Indicators,

10. Economic Freedom Index The Bottom Ten
Source: The Fraser Institute.

11. Income per person of the Bottom 10 on the Economic Freedom Index
Missing Zimbabwe – no data?
Sources: The Fraser Institute; The World Bank, World Development Indicators,

12. Broad Goals of an Economic System
Economic Efficiency (max value, min waste)
Economic Equity (fairness)
Economic Freedom
Full Employment
95% -- why?
Natural rate of unemployment – 4-6%
Economic Growth (GDP, health, literacy, . . .)
Gross Domestic Product: Market price of all final goods and services produced in an economy.
4. Empl: utilization of labor & resources
nat rate of unempl: incl frictional (free to change jobs) & structural
high unempl – wasted resources
85% physical capacity util. –maint old equip.
5. Growth: GDP – real GDP, GDP/capita~stnd of living
invest in capital resources & tech

13. Broad Goals of an Economic System
Economic Efficiency (max value, min waste)
Economic Equity (fairness)
Economic Freedom
Full Employment
Economic Growth (GDP, health, literacy, . . .)
Security (defense, safety net)
Medicare
Social security
Price Stability
Keeping prices from rising too quickly
Goals are not necessarily mutually compatible!
6. nat’l defense & safety net (soc sec, medicare )
7. stable P level less risk to invest;
infl (hurts those on fixed inc, lenders at set rate – infl>int!); defl

15. What is the most important economic goal, in your opinion? Why?
Journal
What is the most important economic goal, in your opinion? Why?

17. Market Economic Systems
Capitalism: means of production and distribution are privately owned.
Voluntary exchange
Market determined price
Consumers determine what
Producers determine how
Market determines for whom

18. Command Economic Systems (centrally planned)
Socialism: means of production and distribution are collectively owned.
Centralized government plans and controls the economy
What
How
For whom
Collectivism: social order that calls for the ownership or control of means of production by state or groups rather than individuals
Communism (Marxism-Leninism): A system of government or social theory
. . . the state (collectively) plans and controls the economy.

19. Benefits of a Market Economy: more merit based
Market information through price: Price signals buying and selling decisions
resources directed to consumer’s perceived highest valued use
Producer incentive to lower cost
Important attributes:
Private property
Free enterprise
Competition
Price system
Limited government
Incentives of Ownership –take care of proerty, invest in property, enc efficient allocation of rsources, enc econ growth
Enc entrepreneruship – owner recieves B/C of risk
Resources used to prod what consumers desire at the lowest cost (competition)
Govt to enforce PR & contracts, ltd production.

20. Benefits of a Command Economy: more egalitarian
Intention: greater equality
no unemployment
resources intentionally directed to expand growth
Unintended consequences:
Income transfer from rich to poor
Less efficiency
Those who earn more can’t keep it, therefore work less
Those receiving income don’t have to work, therefore work less
Alternative grading scale: