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2.01 Economic Systems Objective 2.01 Compare different types of economic systems: traditional, free enterprise, command and mixed.

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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 Systems Objective 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. Technology Land Oil & fuel Doctors

3 Factors of Production Economic Resources
Natural Resources – raw materials found in nature that are used to produce goods Human Resources – people’s knowledge, efforts, and skills used in their work Capital Resources – used to produce goods and services (buildings, materials, and equipment) Entrepreneurial Resources - recognize the need for new goods or service Scarcity – 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 Systems Traditional Economy Market Economy (free enterprise) Command Economy Mixed Economy

5 Traditional Economy Found in rural, under-developed countries–
Vanuatu Pygmies of Congo Eskimos & Indian tribes Belarus Customs govern the economic decisions that are made Farming, hunting and gathering are done the same way as the generation before Economic activities are centered around the family or ethnic unit Men and women are given different economic roles and tasks Advantages: people have specific roles; security in the way things are done Disadvantages: 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 services Disadvantage—huge rift between wealthy and poor Note: a true market economy does not exist. Also called a Free Market Economy or Free Enterprise Economy Businesses and consumers decide what they will produce and purchase and in what quantities Decisions 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) Advantages Guarantees equal standard of living for everyone Less crime and poverty Needs are provided for through the government Disadvantages Minimal choices Fewer choices of items No incentive to produce better product or engage in entrepreneurship Also known as a Planned or Managed Economy

8 Mixed Economy Combination of a market and a command economy
Government takes of people’s needs Marketplace takes care of people’s wants. Most nations have a mixed economy: United States, England, Australia Advantage—balance of needs and wants met by government and in marketplace Disadvantage—citizens have to pay taxes

9 Objective 2.04 Understand the United States’ economic system.
2.04 U.S. Economy Objective 2.04 Understand the United States’ economic system.

10 Mixed Economy A combination of a free enterprise (or market) and a command economy. Privately owned businesses and government both play important roles. The marketplace produces: cars health care technology food (with some government regulations) The government provides: defense education

11 United States’ Mixed Economy
Free Enterprise/Market Economy

12 Market Economy Characteristics
Private property ownership. Freedom of enterprise and Choice Motive of self-interest Competition System of markets and prices The market addresses consumer wants

13 Market Economy Advantages Individuals can own businesses and resources
Individuals can buy and sell goods and services Competition in the market leads to greater choices Consumers 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 Government The 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 services Schools and other public education services Social Security Medicare Defense and public safety

17 Command Economy Advantages
Consumers have some protection in the marketplace Essential services are provided for citizens

18 Command Economy Disadvantages
Citizens have to pay taxes so the government can provide services Some 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 world A mixed economy Corporations 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 Marketplace In 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 Defined How 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 Defined An 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.

26 Equilibrium Price (Market Price)
Supply Curve Equilibrium/ Market Price Demand Curve

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 profit If a person sees that they can meet a need or a want, they enter the marketplace They compete with other businesses already meeting the need or want. OR They make a new product and competition follows when others enter the marketplace.

29 The Profit Motive People 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 PowerPoint Objective 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 economy Raises and lowers the discount interest rate Puts money into circulation Removes money from circulation

32 Impact of the Federal Reserve
If the Federal Reserve raises the discount rate Consumer credit becomes more expensive Consumers buy fewer large goods—refrigerators, boats, etc. If the Federal reserve lowers the discount rate Consumer credit becomes less expensive Consumers 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 corporation Corporations are permitted to sell stock to raise capital for the corporation Shareholders 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 interest Corporate Bonds Municipal Bonds Treasury Bonds US Savings Bonds Futures—agreement to buy or sell a commodity (oil, gold, etc.) at some point Mutual Funds—combination of individual stocks Stocks, 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 Exchange NASDAQ—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 Market Stock prices going up or rising Consumers are optimistic and buy stock hoping to earn more money Consumers buy goods and businesses prosper Bear Market Stock prices are going down or falling Consumers are pessimistic and reluctant to buy stock Investors sell stock so they won’t lose more money Consumers 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.

39 Finance and Investment

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 activities controlling shareholder Stock 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 ET Bear or Bull Market? The use of  "bull" and "bear" to describe markets comes from the way in which each animal attacks its opponents. That is, a bull thrusts its horns up into the air, and a bear swipes its paws down. These actions  are metaphors for the movement of 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, 1954 Dow dropped 89% 1987 – The Market fell dramatically. A prolonged period in which investment prices fall, accompanied by widespread pessimism Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly

44 Bull Market long term uptrend (months to years) price movement in any market An extended period of generally rising prices characterized by optimism, investor confidence and expectations that strong results will continue.

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