1. Basic Economic Unit Part II
Types of Economies
Basic Economic Unit Part II

2. Types of Economic Systems

3. Traditional Little Change Based on Custom
How they always have been answered

4. Command

5. Socialism
Socialism: Government controls major industries and distributes many needs and wants

7. Communism
Socialism with a dictatorship. Government controls everything

8. How do command economies answer the basic economic questions?
The Government does

9. Market

10. Characteristics Private Individuals control factors of production
Individual freedom to make choices

11. Basic Economic Questions
Interaction between producers and consumers

14. All economies are actually mixed
All economies are actually mixed. What determines whether an economy is considered market or command depends on the level of
Government involvement.

15. Centrally Planned vs. Free Market
North Korea, United States, Cuba, Germany, China
More Gov. Less Gov.

16. Socialist or Market? “Proposed increase in minimum wage”
“Oil prices soar because of Middle East unrest”
“Stock prices plummet due to concerns over European markets”
“FDA recalls Butterball Turkeys Over Salmonella concerns”
“Recent freeze could lead to increase in cost of strawberries”

17. Market
The exchange of goods and services between buyers and sellers

18. What does the Circular Flow Model illustrate?

19. Factor Market
Where productive resources are bought and sold

20. Product Market
Market where goods and services (finished products) are offered for sale

21. What happens when less is exchanged in the circular flow?
The economy shrinks

22. What happens when more is exchanged?
Economy grows

23. What can we use to measure the size of the economy?
GDP
The Dollar value of all FINAL goods and services produced in a nation in a year.

24. What is productivity?
The amount of output that can be produced by a set amount of resources in a given period of time

25. Increasing Productivity
Specialization = when people, businesses or countries focus on what they do best
Division of Labor = breaking down of a job into small parts performed by different workers
Investing in Human Capital = spending to improve worker skills

26. Specialization and Trade
Fish
Pineapple
Jake 20 30
George 15 50

27. What do these practices create between individuals, communities and nations?
Economic Interdependence dependence between people for goods and services

28. Characteristics of Capitalism
Free Enterprise – Competition with little government interference
Freedom of Choice – individuals can choose what work to do and what to buy (creates Consumer Sovereignty in the market)

29. Private Property – right to own and use our property how we choose within certain legal limits. Provides incentives to take care of and invest.
Profit Incentive – (Self-Interest) the driving force of capitalism, the ability to accumulate wealth
Competition – (the regulator) the struggle between buyers and sellers to get the best products at the best prices

30. Origins and Characteristics of Economic Theory
Adam Smith

31. What was the Wealth of Nations?
Smith’s book that explained the principles of Capitalism

32. What did Smith mean by Laissez-faire economics?
“To let alone”
Government’s only economic role is to ensure competition

33. The Invisible Hand
Belief that individuals left on their own would work for own self-interest
Would be guided by “invisible hand” to use resources efficiently (Government needs to do little)

34. Invisible Hand Self-Interest + Competition =
Higher Quality + Lower Prices
Most Efficient Use of Resources

36. Karl Marx
Father of Communism

37. Das Kapital
Exploitation of the working class

38. Failure of Capitalism
The ‘haves’ and the ‘have nots’

39. Capitalists (Owners of the means of production)
Class Conflict
Capitalists (Owners of the means of production)
And
Workers

40. Capitalism’s Fall

42. Fault of Communism

43. John Maynard Keynes
Established a new role of government in a Capitalist economy.

44. Way out of Depression
Government to start spending

45. Franklin D. Roosevelt
Public Works Program