Presentation on theme: "2.01 Economic Systems Objective 2.01 Compare different types of economic systems: traditional, free enterprise, command and mixed."— Presentation transcript:
1 2.01 Economic SystemsObjective 2.01 Compare different types of economic systems: traditional, free enterprise, command and mixed.
2 What is Economics?Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources.TechnologyLandOil & fuelDoctors
3 Factors of Production Economic Resources Natural Resources – raw materials found in nature that are used to produce goodsHuman Resources – people’s knowledge, efforts, and skills used in their workCapital Resources – used to produce goods and services (buildings, materials, and equipment)Entrepreneurial Resources - recognize the need for new goods or serviceScarcity – shortage of resources
4 Why Economic Systems?Nations use economic systems to determine how to use their limited resources effectively.Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life.Different types of Economic SystemsTraditional EconomyMarket Economy (free enterprise)Command EconomyMixed Economy
5 Traditional Economy Found in rural, under-developed countries– VanuatuPygmies of CongoEskimos & Indian tribesBelarusCustoms govern the economic decisions that are madeFarming, hunting and gathering are done the same way as the generation beforeEconomic activities are centered around the family or ethnic unitMen and women are given different economic roles and tasksAdvantages: people have specific roles; security in the way things are doneDisadvantages: Technology is not used; difficult to improve
6 Market Economy (Free Enterprise) Supply and demand of goods and services determine what is produced and the price that will be charged.Advantage—competition to have the best products and servicesDisadvantage—huge rift between wealthy and poorNote: a true market economy does not exist.Also called a Free Market Economy or Free Enterprise EconomyBusinesses and consumers decide what they will produce and purchase and in what quantitiesDecisions are made according to law of supply & demand
7 Command Economy Advantages Disadvantages The government (or central authority) determines what, how, and for whom goods and services are produced.Two types:Strong Command – where government makes all decisions (communism – China, Cuba)Moderate Command – where some form of private enterprise exists but the state owns major resources (socialism – France and Sweden)AdvantagesGuarantees equal standard of living for everyoneLess crime and povertyNeeds are provided for through the governmentDisadvantagesMinimal choicesFewer choices of itemsNo incentive to produce better product or engage in entrepreneurshipAlso known as a Planned or Managed Economy
8 Mixed Economy Combination of a market and a command economy Government takes of people’s needsMarketplace takes care of people’s wants.Most nations have a mixed economy: United States, England, AustraliaAdvantage—balance of needs and wants met by government and in marketplaceDisadvantage—citizens have to pay taxes
9 Objective 2.04 Understand the United States’ economic system. 2.04 U.S. EconomyObjective 2.04 Understand the United States’ economic system.
10 Mixed EconomyA combination of a free enterprise (or market) and a command economy.Privately owned businesses and government both play important roles.The marketplace produces:carshealth caretechnologyfood (with some government regulations)The government provides:defenseeducation
11 United States’ Mixed Economy Free Enterprise/Market Economy
12 Market Economy Characteristics Private property ownership.Freedom of enterprise and ChoiceMotive of self-interestCompetitionSystem of markets and pricesThe market addresses consumer wants
13 Market Economy Advantages Individuals can own businesses and resources Individuals can buy and sell goods and servicesCompetition in the market leads to greater choicesConsumers play a great role in the economy
14 Market economy Disadvantage The critical role of the consumer in the market can create a tremendous divide between the poor and the wealthy
15 Limited GovernmentThe government helps protect people by being a body that monitors public safety through regulatory agencies such as:Food & Drug Administration (FDA)Occupational Safety and Health Administration (OSHA)
16 The government provides some services to take care of people’s needs Highways--roads and other transportation servicesSchools and other public education servicesSocial SecurityMedicareDefense and public safety
17 Command Economy Advantages Consumers have some protection in the marketplaceEssential services are provided for citizens
18 Command Economy Disadvantages Citizens have to pay taxes so the government can provide servicesSome think there is too much government control in the marketplace
19 United States’ Economy Summary Government has a minimal role in the domestic economy.Business firms in the U.S. have much less regulation than those in many other nations.Largest national economy in the worldA mixed economyCorporations and other private firms make the majority of microeconomic decisions.
20 2.02 Supply and Demand 02.00 Understand Economics and Economic Systems 02.02 Interpret supply and demand graphs
21 MarketplaceIn a free market, consumers determine the demand of a product.Entrepreneurs see the demand and make more of the product.More supply causes the price to decrease as the demand is fulfilled.
22 Supply DefinedHow much of a good or service a producer is willing and able to produce at different prices.Supply is produced by the businesses in hopes of making money.
23 Demand DefinedAn individual’s need or desire for a good or service at a given price.Individuals are willing to consume more of product or service at a lower price.When the demand is high, competitors see opportunity in the market.
24 Supply and Demand Graphs People draw supply and demand graphs so that they can easily see the relationship between the supply and the demand.A supply and demand graph is a visual representation of supply and demand.The graph shows changes in a product’s demand or supply.The graph can help predict the performance of the product over time.
25 When Supply and Demand Meet The point at which the supply and demand curve meet is known as the equilibrium price and quantity.When the price is above the equilibrium price, fewer people are willing to buy—the price is too high.When the price is below equilibrium price, many people are willing to buy a lot of the product—the price is too low. Suppliers may not be able to make enough money to cover costs.
27 Prices tell businesses what to produce The prices of goods and services dictate what products are developed, made, improved or modified.When the price is high, demand falls and businesses produce fewer goods.When the price is low, demand rises and businesses produce more goods to meet the demand.
28 Competition is sparked Sellers compete to make a profitIf a person sees that they can meet a need or a want, they enter the marketplaceThey compete with other businesses already meeting the need or want.ORThey make a new product and competition follows when others enter the marketplace.
29 The Profit MotivePeople and businesses enter the marketplace in hopes of making a profit (money).This “profit motive” encourages people to enter the marketplace.This hope of making a profit is the reward for people who take risks by entering the marketplace.
30 2.03 PowerPointObjective 2.03 Explain how the Federal Reserve, Stock Market, and e-commerce impact the United States’ economic system.
31 The Federal Reserve Central Bank of the United States Regulates the money supply in the US economyRaises and lowers the discount interest ratePuts money into circulationRemoves money from circulation
32 Impact of the Federal Reserve If the Federal Reserve raises the discount rateConsumer credit becomes more expensiveConsumers buy fewer large goods—refrigerators, boats, etc.If the Federal reserve lowers the discount rateConsumer credit becomes less expensiveConsumers buy more expensive goods—cars, washing machines, etc.
33 What are stocks? Stocks are shares of ownership in corporations Shareholders have partial ownership in the corporationCorporations are permitted to sell stock to raise capital for the corporationShareholders may receive dividend payments from the corporation
34 What other investments are traded? Bonds—loans made by the investor to the issuer; the investor is repaid with interestCorporate BondsMunicipal BondsTreasury BondsUS Savings BondsFutures—agreement to buy or sell a commodity (oil, gold, etc.) at some pointMutual Funds—combination of individual stocksStocks, Bonds, Futures, and Mutual Funds are called Securities.
35 The Stock Market’s Purpose The stock market is where shares of stocks, bonds, and futures are bought and sold (or traded). (Can be electronic.)The stock exchange is the actual physical location where stocks are listed and traded.New York Stock Exchange (NYSE)American Stock ExchangeNASDAQ—virtual exchange
36 The Stock Market’s Functions Provides companies with a way of issuing shares of stock to people who want to invest in the company. The sale of shares of stock is a way for the corporations to raise money.Provides a place for the buying, selling and trading of stocks (and other securities).
37 Impact of the Stock Market on the Economy Bull MarketStock prices going up or risingConsumers are optimistic and buy stock hoping to earn more moneyConsumers buy goods and businesses prosperBear MarketStock prices are going down or fallingConsumers are pessimistic and reluctant to buy stockInvestors sell stock so they won’t lose more moneyConsumers buy fewer goods and businesses may lose money. Some workers may lose jobs.
38 Impact of E-commerce on the Economy Because consumers can purchase goods on the Internet they have more choices in goods.Global competition is increased and US businesses must compete globally.Fewer salespeople are needed in stores—a shift in jobs is required. More people are needed in order fulfillment and customer service.Goods are manufactured just-in-time—as they are needed for distribution.
40 Stocks help . . .Stocks are . . .you raise money from selling those "pieces" of your business which can be used to build new plants and facilities, pay down debt, or acquire another company.smart owner will keep at least 51% of the stock, which will allow them to retain control of the day to day activitiescontrolling shareholderStock is ownership in a company. (Equity)If you were to divide your business up into small pieces and sell those pieces, you would essentially have issued stock.
41 What is the Dow Jones Industrial Average? An index of thirty, blue chip stocks that are traded in the United States.It is believed that by looking at the companies on the list, a person can get a general picture of how the market as a whole is performing.The most quoted and followed index in the world, and dates back to May 26, 1896.
42 Bear or Bull Market? The use of "bull" and "bear" The Dow Jones Industrial Average™ Updated as of: Oct 26, 2:37 pm ETBear or Bull Market?The use of "bull" and "bear"to describe markets comes fromthe way in which each animalattacks its opponents. That is,a bull thrusts its horns upinto the air, and a bear swipesits paws down. These actions are metaphors for the movementof a market: if the trend is up, it is considered a bull market.And if the trend is down,it is considered a bear market.
43 Bear Market 1929 Crash most famous crash in U.S. history Dow Industrials hit a high of 386 in September, 1929.It did not get back to that level until November, 1954Dow dropped 89%1987 – The Market fell dramatically.A prolonged period in which investment prices fall, accompanied by widespread pessimismBear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly
44 Bull Marketlong term uptrend (months to years) price movement in any marketAn extended period of generally rising pricescharacterized by optimism, investor confidence and expectations that strong results will continue.