1. Economics Chapter 2

2. Types of Economies In a Command economy the government holds most property rights. Essentially government planners decide what goods and services to produce. In a Command economy the government holds most property rights. Essentially government planners decide what goods and services to produce. A Traditional System is one where the laws of trade are not codified. The people of an area or nation rely on customs or traditions. A Traditional System is one where the laws of trade are not codified. The people of an area or nation rely on customs or traditions. In Mixed systems- there is a blend of voluntary exchange, government command, and even traditional elements of trade. In Mixed systems- there is a blend of voluntary exchange, government command, and even traditional elements of trade.

3. Free Enterprise-people are free to make economic choices Free Enterprise-people are free to make economic choices There are pillars to free enterprise… There are pillars to free enterprise… 1. Private Property 1. Private Property 2. Specialization 2. Specialization 3. Voluntary exchange 3. Voluntary exchange 4. The Price System 4. The Price System 5. Market competition 5. Market competition 6. Entrepreneurship 6. Entrepreneurship

4. Questions to Consider Of the pillars of free enterprise which do you think is most important to success of a free enterprise economy? Of the pillars of free enterprise which do you think is most important to success of a free enterprise economy? Are the prosperity of households and prosperity of business interrelated? Use your understanding of the circular flow model to explain. Are the prosperity of households and prosperity of business interrelated? Use your understanding of the circular flow model to explain. Explain why you agree or disagree with the following statement. Explain why you agree or disagree with the following statement. “If there were no private rights, there would be no markets. If there were no markets, there would be no prices. If there were no prices, everything would be free.” “If there were no private rights, there would be no markets. If there were no markets, there would be no prices. If there were no prices, everything would be free.”

5. Property Private Property- the resources and products owned by individuals or businesses Private Property- the resources and products owned by individuals or businesses Public Property- refers to the resources and products owned by government Public Property- refers to the resources and products owned by government The right to own property is protected by the US constitution The right to own property is protected by the US constitution

6. Specialization Specialization- is a process in which business and people focus on producing one or a few parts of an entire product. Specialization- is a process in which business and people focus on producing one or a few parts of an entire product. For example The Gap specializes in making clothes, they do not also try to make ipods and automobiles For example The Gap specializes in making clothes, they do not also try to make ipods and automobiles Specialization leads to a voluntary exchange Specialization leads to a voluntary exchange

7. Voluntary Exchange People must buy and sell all of the products they need. People simply do not have the time and resources to get all of the products they need by making them. People must buy and sell all of the products they need. People simply do not have the time and resources to get all of the products they need by making them. Think of a pencil… Think of a pencil…

8. Market Competition Market competition is competition among businesses Market competition is competition among businesses Businesses compete in resource markets and product markets. Businesses compete in resource markets and product markets.

9. Competition Competition in resource markets are the land, labor, and capital businesses need to produce their good. They compete for these resources in a variety of ways Competition in resource markets are the land, labor, and capital businesses need to produce their good. They compete for these resources in a variety of ways Competition in Markets for Products include all the goods and services consumers buy Competition in Markets for Products include all the goods and services consumers buy

10. Entrepreneurship This is the motivation that drives business leaders to compete and react to changing conditions in the market This is the motivation that drives business leaders to compete and react to changing conditions in the market

11. Money Barter is an exchange of goods and services without using any money Barter is an exchange of goods and services without using any money Medium of exchange- when money is traded for a good or service Medium of exchange- when money is traded for a good or service Store of value- this means it has value because you can hold on to it and use it some time in the future Store of value- this means it has value because you can hold on to it and use it some time in the future Measure of Value- relative value of products Measure of Value- relative value of products