1. Economic Systems and Decision Making
Economics Chapter 2

2. Lesson 1: Economic Systems
Essential Question: How does an economic system help a society deal with the fundamental problem of scarcity? Background Knowledge Assessment Introduction Video:

3. The Three Economic Questions:
What to produce?
How to produce?
For whom to produce?
The Three Economic Questions:

4. Types of Economic Systems
Traditional economy
Command economy
Market economy
Types of Economic Systems

5. Mixed Economies
Combine elements of traditional, command, and market economies.
Pure traditional, command, and market economies are extreme, most economies are mixed to some degree

8. Market Economy Capitalism
Government does NOT make decisions about economy, the people do.
The demand of consumers drives economic decisions.
Laissez-faire

10. Economic Systems Types of Economies Traditional Command Market
Economic system—an organized way of providing for the wants and needs of their people.
Types of Economies
Strengths Weaknesses
Sets economic roles for all
Life is stable and predictable
Discourages new ideas
Lower living standards
Traditional
Capable of great change in a short amount of time
Does not meet the needs/wants of the consumers
Lack incentives
Discourages new ideas
Command
Adjusts to change
Laissez-Faire
Produces great variety of goods
High degree of consumption
Some people get left out or struggle to provide for themselves
Market

12. Capitalism and Economic Freedom
Capitalism - private citizens, many of whom are entrepreneurs, own the factors of production.
Free Enterprise - competition is allowed to flourish with a minimum of government interference.
Characteristics of Free Enterprise and Capitalism
Economic Freedom
People may choose their jobs, employers,
and how to spend their money.
Businesses may choose what
products to sell and what
to charge for them.
Voluntary Exchange
Buyers and sellers may engage freely and
willingly in market transactions.
Competition
Producers and sellers compete with one another to attract consumers, while lowering costs.
Consumers compete with one another
to obtain the best products
at the lowest prices.
Private Property Rights
People may control
their possessions
as they wish.
Profit Motive
People and organizations
may improve their
material well-being by
making money.

13. Capitalism and Economic Freedom
Voluntary exchange – the act of buyers and sellers freely and willingly engaging in market transactions
Profit - extent to which persons or organizations are better off at the end of a period than they were at the beginning
Profit motive - the driving force that encourages people and organizations to improve their material well-being is largely responsible for the growth of a free enterprise system based on capitalism.
The Role of the Entrepreneur
One of the most important people in the economy
Organizes and manages land, capital, and labor in order to seek the reward called profit.
Entrepreneurs are the ones who start up new businesses such as restaurants, automobile repair shops, Internet stores, and video arcades.
The Role of the Consumer
In the United States, consumers often are thought of as having power in the economy because they determine which products are ultimately produced.
The Role of the Government
All forms of Government have the roles of: Protector, Provider & Consumer, Regulator, and Promoter of
National goals in the economic system

14. Discussion Questions
Do your parents want you to follow in their footsteps?
» Enter the same profession?
» Take over the family business?
» Attend the same college?
Do you have enough Freedom to do the things you want?
Do your parents and friends treat you in an equitable manner?
Does our economy allow economic freedom?