1. 2 - 1 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom Economic Systems & Decision Making 2 C H A P T E R

2. 2 - 2 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom ECONOMIC SYSTEMS THE MARKET SYSTEM Pure Capitalism Laissez-faire “Let it be”

3. 2 - 3 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom ECONOMIC SYSTEMS THE MARKET SYSTEM Pure Capitalism Laissez-faire “Let it be” THE COMMAND SYSTEM Socialism Communism

4. 2 - 4 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom ECONOMIC SYSTEMS TRADITIONAL SYSTEM –Based on habits and/or customs –Tribal, indigenous MIXED ECONOMY –Has elements of two or more systems.

5. 2 - 5 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom TRADEOFFSTRADEOFFS Economic Freedom Economic Efficiency Economic Equity Economic Security Full Employment Price-Level Stability Economic Growth ECONOMIC GOALS COMPLIMENTS

6. 2 - 6 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom The Market System

7. 2 - 7 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom CAPITALIST IDEOLOGY FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY SELF- INTEREST COMPETITION

8. 2 - 8 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom MARKETS & PRICES FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY ACTIVE, BUT LIMITED, GOVERNMENT SELF- INTEREST COMPETITION CAPITALIST IDEOLOGY

9. 2 - 9 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom GLOBAL PERSPECTIVE Index of Economic Freedom, Selected Nations 1 Hong Kong 3 Ireland 5 United States 20 Belgium 31 Spain 48 France 101 Brazil 126 China 134 Russia 148 Venezuela 156 Cuba 157 North Korea FREE MOSTLY FREE MOSTLY UNFREE REPRESSED Rankings among 157 nations, 2008

10. 2 - 10 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom The Three Fundamental Questions... What will be produced? THE MARKET SYSTEM AT WORK

11. 2 - 11 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom The Three Fundamental Questions... How will the goods be produced? What will be produced? THE MARKET SYSTEM AT WORK

12. 2 - 12 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom The Three Fundamental Questions... How will the goods be produced? What will be produced? Who will get the goods and services? THE MARKET SYSTEM AT WORK

13. 2 - 13 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom Those goods and services that make a profit. WHAT WILL BE PRODUCED? Profit = Total Revenue – Total Cost

14. 2 - 14 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom Least Cost Production  Maximizing output while minimizing cost. HOW WILL THE GOODS AND SERVICES BE PRODUCED?

15. 2 - 15 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom The market determines the price. Those willing to pay that price receive the goods and services. Income is the key. WHO WILL GET THE GOODS AND SERVICES?

16. 2 - 16 Economic Systems Evaluating Economic Performance Capitalism and Economic Freedom THE CASE FOR THE MARKET SYSTEM Efficiency Incentives Freedom