1. Chapter 2
Economic Systems

2. In your group of four (4) put the following words into alphabetical order as quickly and accurately as possible. Use the contributions of all group members as much as possible, but remember that the goal is to finish the task in a timely manner. Raise your hand when your group is done and stay quiet.

3. Group Roles #1 Anything you want to
#2 Anything you want , but no talking
# 3 Anything you want, but keep hands behind back
#4 Anything you want, but keep eyes closed
#5 Anything you want, but no talking, keep eyes closed, and hands behind back

4. The Three Economic Questions
Every society must answer three questions:
What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?

5. An organized way of providing for the wants and needs of a society.
Economy or Economic System
An organized way of providing for the wants and needs of a society.
Three Types of Pure Economic Systems
1.Traditional
2. Command
3. Market

6. Traditional Economy Based on custom and tradition
answers to the 3 economic questions are found in the past
Children often carry on roles of their parents as hunters or farmers
Drawbacks: new ideas are discouraged and often punished
Ex. Canadian Inuits

7. Command Economy
Government officials answer economic questions. Central planners decide who will receive products and what will be produced.
Strengths: can easily change economic direction
Weaknesses: they do not always meet the needs of individuals, there is little incentive for individuals to work hard, large bureaucracies often are slow making decisions, are not flexible enough to deal with day to day problems.
Ex. North Korea, Cuba, and the People’s Republic of China.

8. Market Economy Individuals answer the 3 economic questions
Government has no say. Factors of production (resources) are owned by individuals
People can buy, sell, or produce anything they want

9. Economic Goals
Societies answer the three economic questions based on their values.
Economic Goals
Making the most of resources
Economic efficiency
Freedom from government intervention in the production and distribution of goods and services
Economic freedom
Assurance that goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster
Economic security and predictability
Fair distribution of wealth
Economic equity
Innovation leads to economic growth, and economic growth leads to a higher standard of living.
Economic growth and innovation
Societies pursue additional goals, such as environmental protection.
Other goals

10. Authoritarian socialism or communism- closest to command
Mixed economies- combine elements of traditional, market, & command economic models.
Authoritarian socialism or communism- closest to command
the government owns or directs nearly all factors of production (Cuba)
Capitalism- economies closest to market
Democratic Socialism- between authoritarian socialism and capitalism.
Gov’t owns some factors of prod. usually key industries like utilities, telephone, etc. Leaders are elected by the people. (Sweden, Poland, France.)

11. Capitalism
Features:
Private individuals own resources & choose how they are used.
Gov’t has limited economic power, acts only to prevent fraud or others from using force, and to protect safety.
Exchanges between producers and consumers are voluntary.
(Canada, Mexico, Japan, Taiwan)
Strengths:
Produces more w/available resources than others
Provide equality of opportunity b/c of strict property protection rights
Drawbacks: does not distribute wealth equally. Despite basic fairness there will always be discrimination.

12. Adam Smith- Philosopher & economist who explained the process of market regulation.
when the government is not involved in the economy that the market is purely driven by self-interest.
self-interest acts as an “invisible hand” that leads people to do what is best for society
Incentives- can be positive or negative- encourage people to behave in a particular way

13. Profit Motive- the incentive for a producer to improve or innovate due to a possible monetary gain
Makes people act in their own self interest

14. Comparing Mixed Economies
An economic system that permits the conduct of business with minimal government intervention is called free enterprise. The degree of
government involvement in the economy varies among nations.
Continuum of Mixed Economies
Centrally planned
Free market
Source: 1999 Index of Economic Freedom, Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick
Iran
North Korea
Cuba
China
Russia
Greece
Peru
United States
South Africa
France
United Kingdom
Botswana
Canada
Singapore
Hong Kong