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Economic Systems Chapter 2, Section 1

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1 Economic Systems Chapter 2, Section 1
Answering the Three Economic Questions EQ: How do different economic systems answer the three economic questions?

2 The Economic System A system in which the society decides to produce & distribute goods & services

3 3 Economic Questions How to produce What to produce
For whom to produce

4 Economic Goals Different societies answer the three economic questions based on the importance they attach to various economic goals.

5 The Four Types of Economies

6 Traditional Relies on habit, custom or ritual in answering the Three Key Econ questions

7 Free Market All decisions are made by the individual & are based on exchange or trade

8 Command /Centrally Planned
The gov’t alone decides how to answer the Three Key Econ questions

9 Mixed A market-based econ in which the gov’t plays a limited role


11 How do they differ? In the way each system answers the production and distribution questions

12 Factor Payments Income for supplying factors of production.
Why isn’t everyone paid the same? Society values resources & products differently. The Doctor v. garbage man

13 Safety Nets Why would a gov’t create & provide these programs?
To fulfill the goal of economic security and predictability for it’s citizens

14 1. For whom is this good produced?

15 Quiz?!!!! Give One Example for Each of the Following.
Traditional Economy Command Economy Market Economy Mixed Economy Amish Cuba United States

16 Economic Systems Chapter 2
The Free Market Economy Section 2 EQ: What are the two markets within a free market economy?

17 Specialization & Efficiency
Allows one to focus on a particular task & not worry about basic needs at the same time More efficient

18 Factor market v. Product Market
Provides goods & services necessary to produce more goods & services Product Market Finished goods & services to consumers

19 Profit A financial gain made in a transaction

20 Households & Firms & the Market Econ
What’s their role? Household Provide factors of production in factor market & buying power in the product market

21 Households & Firms & the Market Econ
What’s their role? Firms Buyers of factors of production & suppliers of goods & services

22 The Benefit of Competition
Competition means firms produce goods/services of high quality & sell at low prices

23 Adam Smith’s “Invisible Hand”; Its Effect on the Market Place
Consumer self-interest & firms competing naturally lead to an econ that consumers can buy goods/services at reasonable prices

24 The Incentive & Consumer Sovereignty Relationship
The consumer chooses what to buy, thus exerts control over what is produced by creating an incentive for firms to produce the good or service

25 Quiz?!!!

26 Economic Systems Chapter 2
Centrally Planned Economies Section 3

27 Socialism v. Communism Socialism
Gov’t often owns major industries it deems vital to the nation Can be achieved through democracy

28 Socialism v. Communism Communism
All economic & political power is controlled by the central gov’t Often authoritarian

29 The Authoritarian Government
What are the characteristics? Strongly centralized Demand strict obedience Disallow individuals freedom of judgment & action

30 Soviet Collectives & Incentives
Offer little incentive farmer paid a set wage told what to produce why produce more or produce efficiently?

31 Soviet Heavy Industry & Opportunity Cost
What did it cost? The Soviets lacked adequate consumer goods and services

32 Quiz?!!! Which of the following would be difficult to achieve in a command economy?
Economic efficiency Economic security & predictability Economic equality Economic growth & innovation THE ANSWER Economic efficiency Economic growth & innovation

33 Economic Systems Chapter 2
Modern Economies Section 4 3 Slides

34 Laissez-faire What is it?
A doctrine that states that a gov’t should not intervene in the marketplace

35 Transition to Free Enterprise
Some centrally planned nations are shifting to free enterprise to keep pace with the evolving global economy

36 Privatizing and a Centrally Planned Economy
Privatizing is slow due to there being few enterprises or businesses exist No one there to take over

37 Quiz?!!!!! US Free Enterprise v. Other Economic Systems
What’s the difference? Freedoms The individual not the gov’t make econ decisions

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