1. ECONOMIC PERSPECTIVES - CHAPTER 2
Economic Systems and the American System
ECONOMIC PERSPECTIVES - CHAPTER 2

2. Section 1
Economic systems

3. All economic systems face the same basic questions.
Main idea:
All economic systems face the same basic questions.
But first…
What is an economic system?
The way in which a nation uses its resources to satisfy its people’s needs and wants

4. Three basic questions:
What should be produced?
How should it be produced?
For whom should it be produced?

5. Main Idea: Economic decisions always have costs
Trade-off: sacrificing one good or service to purchase or produce another
Example: if you choose to buy an iPod, you are exchanging your income for the right to own the iPod.
The Cost of Trade-Offs
Opportunity Cost: the value of the next best alternative given up for the alternative that was chosen

6. Types of economic systems
Combines the characteristics of more than one type of economy
Individuals own the factors of production and make econ. decisions through free interactions
Government controls the factors of production & makes decisions about their use
System in which economic decisions are based on customs and beliefs that have been handed down from generation to generation
Traditional economy
Command economy
Mixed economy
Market economy

7. Advantage Disadvantage Examples
Traditional economy – Decisions made by Chiefs', Healers, Head of Family
The “way it’s always been done”
Career is what your parents did (ie. Fisherman)
You know what is expected of you
Strong family and community ties
Advantage
Change in economy is discouraged and sometimes punished
Rarely have an increase in material well-being
Disadvantage
Inuit of N. America
Mbuti of the Democratic Republic of Congo
Aborigines of Australia
Examples

8. Command system – decisions made by government or the leader(s) often a dictator
Individuals paid according to what central planners decide.
Might not be able to choose own career.
Lack of incentive to work hard
Lack of consumer choices
Disadvantages
North Korea
Parts of the People’s Republic of China
Examples
Advantages
All individuals will have a job.
All your needs are provided.
Everyone has equal amounts of resources

9. Bell Ringer – Write on the Note Card I gave to you
Bell Ringer – Write on the Note Card I gave to you. Production Possibilities Practice Problem
Graph the data below into a Production Possibilities curve, then prepare to answer questions
POINT
TEA
SCONES A 20 B 10 18 C 15 D 30 E 40

10. 1. In the accompanying table, if Tealand is producing 10 million scones and 10 million cups of tea (point A), then we know that the economy:
A) is using its resources efficiently.
B) is using its resources inefficiently.
C) is fully-employing its resources.
D) is doing none of the above.

11. What is the opportunity cost if you decide to increase the production of scones from 10 to 15 million.
Name a production possibility that is inefficient.
Name a Production Possibility that is not possible.

12. MARKET SYSTEM (AKA CAPITALISM) DECISIONS ARE MADE BY THE CONSUMERS
Market—more than just a “place” – it’s a voluntary exchange of goods and services between buyers and sellers
Individual choices (careers, how to spend money, own property, option to take risks and earn profits)
Competition provides choices and better products
Choices, choices, choices
Advantages
Old, young, and sick that can’t work – who provides for them?
Disadvantages
Examples
United States
Japan

13. Mixed economy – decisions made by both consumers and government
Most countries have a mixed economy – including the United States
Your own money situations
Individual Level:
Make laws protecting private property & regulating parts of business
Environmental protections, Safety guidelines, and consumer protection
Local, State & Federal Government

14. Circular flow model Businesses Sell goods and services to individuals
Individuals pay for goods and services they buy from business
Businesses Pay Taxes
Individuals Pay Taxes
Gov’t benefits to individuals
Gov’t benefits to businesses
Businesses pay for resources they buy from individuals
Individuals sell resources to businesses

15. Circular flow of income and output
Charts in Motion

16. Characteristics of U. S. Economy
Limited Role of Government
Freedom of Enterprise
Freedom of Choice
Profit Incentive
Competition
Private Property

17. Limited RolE of Government
Governmental Role has increased since 1880’s in the U.S.
Often called “Laissez Faire” when pure capitalism exists which means let them do as they choose in French
Includes regulations, laws and taxation

18. Freedom of Enterprise You are allowed to own your own business
You are able to earn a profit or lose everything
You must still follow government guidelines and regulations
Name 5 businesses in Lincoln that are privately owned.

19. Freedom of Choice
Buyers make the decisions about what should be produced
Government has little say in what is produced
Think of something you have purchased that you did not like. Did you ever purchase that item again? Have you ever wanted to purchase something but could no longer find the product? What was it?

20. Profit Incentive
Profit is what is left when all of the businesses costs have been paid
If profits are not realized the business will fail
Can you think of two or three similar products sold by different companies that have the same or similar prices?

21. Competition Profits encourage others to be competitive
Competition leads to efficient use of resources
Name a product that has a lot of competition.
Name a product that has little or no competition.

22. Private Property Allows individuals to own property
Protected by the Constitution
Make a list of 5 items that you own. Which of these items could be used to generate wealth?

23. For each example choose which characteristic of a Market economy it describes
Horatio has purchased a new car. He wants to use it to deliver pizzas while he works.
In my neighborhood, we have a Hy-Vee grocery store and a Russ’s IGA.
Cindy has decided to open her own coffee house near the community college.
Hank runs a taco stand downtown during lunch. He earns about $200 per day. He would like to make even more money and is thinking about opening another stand near the mall.
Buster has been told by the health inspector that he and his employees must wear gloves and hair nets when serving ice cream at his business or they will be shut down.
Vanessa was going to go to Subway for lunch today instead she decided to go to Taco Inn because they were having a sale on Taco’s.

24. Bell Ringer #7
Fill in the arrows indicating what is exchanged between the 2 groups. A. B. C.