1. Bell Ringer
Do all countries have the same economic needs/goals?

2. Economic Systems and the American Economy
Chapter 2

3. Economic Systems
Your goals in life are very different from a teenager who lives in North Korea
The reason for this is because you live in a different economic system
Economic System: the way of determining how to use resources to satisfy people’s wants and needs

4. Economic Systems
When deciding how to use their resources every economic system must answer three questions:
What should be produced?
I-Pods versus Macbooks
Guns versus Butter
How should it be produced?
Skilled or unskilled labor
Quality versus Quantity
For whom should it be produced?
Lottery, first-come-first-serve, sharing equally, military force, or individual choice
Which of these is the American way?

5. Economic Systems There are four types of economic systems:
Traditional
Command (Controlled, Communist)
Market (Capitalist)
Mixed
Can you guess which system is America’s system?
NOTE: No “pure” system exists

6. Economic Systems
In a traditional economy the answer to the three questions is “the way it has always been done”
Economic decisions are based on traditions, customs, and religious beliefs
In this system, you would be the same profession as your father (women are typically housewives) and do it the same way he did
Advantage: you know what is expected of you; family ties/values are strong
Disadvantage: change is discouraged/punished, methods of production are inefficient, choice is rare
Where to find: Inuit tribes, Aborigines in Australia

7. Economic Systems
In a command economy the individual has little influence over the three questions
The Government leaders control the factors of production, and therefore the decisions made
The government is often one person or a small group (a dictatorship)
You would be paid based on what the government wanted to pay you, and in some cases you would do what job they wanted you to do and what schooling you received

8. Economic Systems
There are only a few countries in the world that have a controlled economy today including China, North Korea, and Cuba
Advantage: Speed in rerouting resources (switching from civilian to war goods)
Disadvantage: lack of incentive to work or show initiative, lack of consumer choices

9. Economic Systems
A pure market economy allows individuals to make decisions for their selves and their families
Government does not interfere with economic decisions
Individuals own the factors of production and therefore answer the three questions themselves
Prices are the guiding force behind how individuals make these decisions

10. Economic Systems
A market is a voluntary exchange of goods and resources between a buyer and seller
This occurs anywhere in the world when a government buys oil, a parent hires a babysitter, you buy an I-phone, etc.
As prices change, they act as signals to others in the system
When the price of gas goes up, it signals that there is a shortage so people should buy less, when it goes down, it means that there is enough for people to buy more
The freedom of prices allows the economy to regulate itself over time (doesn’t occur immediately)

11. Homework Finish Reading Chapter 2, Start Reading Chapter 19
Continue working on Unit 1 Study Guide
Begin work on Research Paper

12. Bell Ringer
Is the market economic system better than the command economic system? Why or why not?

13. Consumer Spending on Goods and Services
Economic Systems
Consumer Spending on Goods and Services
Economists use the circular flow of activity model to show how a market system works
Economic decisions are scattered among all participants in the economy
Production
of Goods/Services
Sale or Rent of Resources
Payments for Use of Resources (Wages, Interest, Rents, Profits

14. Economic Systems Advantages of a market economy:
freedoms—choose a career, spend or not spend, own private property, take risks for profit
competition creates more products at cheaper prices, efficient production of goods
Disadvantages of a market economy:
Old, young, and disabled would have to rely on family or other individuals for care
Difficult to shift from civilian goods to military goods in a hurry

15. Economic Systems
Mixed Economy: combines elements from command and market economies
Most countries in the world have a mixed economy
The United States is a mixed economy
Individuals produce and purchase goods based on wants, needs, and price
The government makes laws to protect private property and individuals from bad business practices
Individual goals are based around what type of system you live in
Government involvement versus individual control determines a society’s economic system

16. Characteristics of the American Economy
A pure market system has 6 characteristics:
Little or no government involvement
Freedom of enterprise
Freedom of choice
Private property
The profit incentive
Competition
All of these characteristics are present in the American economy

17. Characteristics of the American Economy
Adam Smith, in his book An Inquiry into the Nature and Causes of the Wealth of Nations, was the first to publish the idea that governments should stay out of the economy
If individuals were left on their own they would work for their own self-interest
By working for their own self-interest people guide the “invisible hand” of using resources wisely to get the most out of them
This is called capitalism
Pure capitalism is called laissez-faire meaning “let [people] do [as they choose]”
American capitalism is people owning the factors of production and using them within legislated limits

18. Characteristics of the American Economy
How is the government involved in the economy today?
Regulate quality of food and drugs
Regulate banking and money
Inspect hazardous working conditions
Protect the environment
Issue taxes for Social Security, etc.
SEC, ICC, FTC and other oversight organizations

19. Characteristics of the American Economy
Another term for the American economy is free-enterprise system meaning individuals own/control the factors of production
If you go into business for yourself, you may become rich, or lose everything
The government does restrict where you can open a business, who you can hire, how you can affect the environment, etc.

20. Characteristics of the American Economy
Americans typically get to choose what they buy (freedom of choice)
When we don’t buy something, the company stops producing it
The government has begun
intervening here too—
warnings on products, age
limits for products, and
setting prices when only a
few companies produce the
product

21. Characteristics of the American Economy
Profit incentive is the willingness to produce goods and services in order to make money
Profit is all the money left over after a business’ bills have been paid
Failing is a risk that the business owner takes
Americans have the right to own private property
We choose what we want to do with the property (within legal means)

22. Characteristics of the American Economy
Competition is necessary for the American system
How does competition lead to efficient use of resources?
Barriers of entrance and exit must be weak
Barriers include: taxes, licenses, laws, etc.
An example: In order to be a teacher, you must have a teaching license

23. The Goals of the Nation
There are six economic goals of the United States:
Economic freedom
Economic efficiency
Economic equity
Economic security
Economic stability
Economic growth

24. The Goals of the Nation
Economic freedom allows Americans to start businesses, own property, and make their own decisions
What economic choices will you be free to make upon graduation?
With these decisions come the possibility of failure— typically the government doesn’t help failures

25. The Goals of the Nation
Economic efficiency requires us to use our resources responsibly
Example: the cost of gas over the summer averaged more than $4/gallon—this was a sign to the Americans that they needed to reduce consumption of gas or risk using it all up
When we reduced our consumption, the price fell down to $1.50-$2 per gallon

26. The Goals of the Nation
Economic equity is desired to make sure all Americans have equal opportunity to be successful (wealthy)
This is why there are labor laws for equal pay and laws for equal access to education despite skin color
This is not to say that the government is responsible for making sure you make the same amount of money as your neighbor when you work at McDonalds and they work for Lockheed Martin

27. The Goals of the Nation
Economic security is provided by the government with regards to issues that are beyond our control
Natural disasters, accidents, old age, bank failures
The government helps people by paying Social Security, Unemployment, or through FEMA and the FDIC

28. The Goals of the Nation
America hopes to avoid extreme ups and downs in the standard of living
Standard of living: the material well being of an individual, group or nation measured by how well their necessities and luxuries are satisfied
The US has one of the highest standards of living in the world

29. The Goals of the Nation Economic growth is a goal of all nations
A country must be able to increase the amount of goods and services produced over time to keep up with expanding populations
A trade-off must occur when one of the goals is competing for resources from another goal
Politicians must understand the goals and how to most appropriately use resources to get the most out of them

30. The Goals of the Nation
There are many rights that come with being in a free-enterprise system
Enter almost any profession you want
Open up any business
Work a little or work a lot
To have these freedoms, there are certain responsibilities
Must support yourself/family
Must elect responsible government officials

31. Homework
P. 45 #1-2
P. 50 #1-3
Continue working on your Factors of Production Project