Chapter 02 econ systems upload verPresentation Transcript
Take a closer look at the way yourhigh school is organized. Whomakes the decisions on lessonplans? Who plans out events thattake place during the year? Whomakes financial decisions, andhow? Are parents and votersinvolved in the educational system?Obtain information from your schooldistrict office or the library to createa chart that lists the rights andresponsibilities of people in yourschool district to meet the needs ofeducation. Read Chapter 2 to learnabout the different economicsystems that societies set up tomeet their specific economic needs.
Every society has aneconomic system to allocategoods and services.
Section PreviewIn this section, you will learn about the differenttypes of economic systems that govern WHATgoods and services to produce, HOW to producethem, and FOR WHOM to produce them.
Economic Systems• All societies use an economic system to provide for needs and wants of their people.• Three major economic systems exist: – Traditional – Command – Market Comparing Economic Systems
Economic Systems What to How to For whom to produce? produce it? produce?TraditionalCommandMarket
Economic Systems (cont.)• Most economies combine elements of the three. Comparing Economic Systems
Traditional Economies Traditional societies use ritual, habit, or customs to answer the basic questions of WHAT, HOW, and FOR WHOM to produce.
Traditional Economies (cont.)• A traditional economy—use of scarce resources and economic activity is based on habit or custom.
Traditional Economies (cont.)• Advantages – Everyone knows which role to play. – Little uncertainty on what or how to produce. –Some people are more comfortable with traditions as opposed to the “new” – Customs and traditions determine who is provided for.
Traditional Economies (cont.)• Disadvantages – Individuals generally not free to make decisions – New ideas discouraged, leading to stagnation and a lower standard of living – Strict rules defined by elders and ancestors – Often live at subsistence level- on the edge of survival
Command Economies Command economies rely on a central authority to make most of the economic decisions.
Command Economies (cont.)• A central authority makes the major decisions in a command economy.
Command Economies (cont.)• Advantages – Can change direction drastically through emphasizing/allocation – Health and public services available to everyone at little or no cost – “Make the trains run on time”
Command Economies (cont.)• Disadvantages – Basic wants and needs of consumers are ignored. –Elite may get enough while the common people go without – Economies tend to be unproductive (not producing enough), not producing a good product. – Large decision-making bureaucracy lacks flexibility, and is often corrupt.
Command Economies (cont.) – Severely limits private property rights – Individual freedom and initiative are limited.
Market Economies In a market economy, consumers and businesses jointly answer the questions of WHAT, HOW, and FOR WHOM to produce.
Market Economies (cont.)• A market economy allows people to make decisions in their own best interest.• Buyers and sellers exchange goods and services in a market.• Market economies are based on capitalism.• Capitalism means that the factors of production are privately owned.
Market Economies (cont.)• Advantages – High degree of individual freedom – Adjusts gradually to change over time – Small degree of government interference – Decision making is decentralized – Large variety of goods and services – High degree of consumer satisfaction
Market Economies (cont.)• Disadvantages – Not everyone is provided for – May not provide enough of some basic goods and services – High degree of uncertainty for workers and employers
Mixed Economies Most economies in the world today feature some mix of traditional, command, and market economies.
Mixed Economies (cont.)• Most economies in the real world are mixed economies.• When political systems are considered with economic systems, the picture gets more complicated.• An example is socialism and its extreme, communism. The Spectrum of Mixed Economies
Mixed Economies (cont.)• The type of political system in a mixed economy is less important than the way basic economic decisions are made. The Spectrum of Mixed Economies
Mixed Economies (cont.)• Advantages of a mixed economy – Provides assistance for some people who might otherwise be left out – In a democratic society, voters use electoral power to affect WHAT, HOW, and FOR WHOM decisions. – In a socialist society, FOR WHOM is addressed more directly by government.
Mixed Economies (cont.)• Disadvantages – More services mean higher costs for citizens overall. – In socialist countries, availability of services may be limited or quality deteriorates over time.
Section PreviewIn this section, you will learn how economicfreedom, economic security, and economic equityare related to the level of satisfaction people havewith their economic systems.
Economic and Social Goals In the United States,we share several economic and social goals.
Economic and Social Goals Americans share several major economic and social goals.
Economic and Social Goals (cont.)• In the United States, there are seven major economic and social goals: – Economic freedom – Economic equity • Equity is impartiality or fairness. • The minimum wage was established on a national level. • Many states established lemon laws.
Economic and Social Goals (cont.) – Economic security • Social Security was established for disabled or retired beneficiaries. – Full employment
Economic and Social Goals (cont.) – Price stability • Inflation makes paying bills difficult for individuals on a fixed income. • High rates of inflation discourage business activity. – Economic growth
Economic and Social Goals (cont.)• As our society evolves, more goals may become important to us.
Resolving Trade-Offs Among Goals Conflicts among goals can be solved by comparing the cost of a goal to its benefit.
Resolving Trade-Offs Among Goals (cont.)• Individuals have different ideas on how to reach a goal or on the goal itself.• Our economic policies have opportunity costs and trade-offs.
Resolving Trade-Offs Among Goals (cont.)• In many cases, trade-offs among goals are resolved when people compare their estimate of the costs to their estimate of the benefits and then vote for candidates accordingly.• The U.S. economy is flexible enough to allow choices, accommodate compromises, and still satisfy the majority of Americans.
Section PreviewIn this section, you will learn how under capitalismthe basic economic decisions of WHAT, HOW,and FOR WHOM to produce are made throughthe free interaction of individuals looking out fortheir own best interests.
American Free Enterprise• In many parts of the world, capitalism has become the economic choice.• Capitalism allows private citizens to own and use the factors of production to generate profits.• The U.S. economy is based on free enterprise. Characteristics of Free Enterprise Capitalism
American Free Enterprise (cont.)• Capitalism and free enterprise are often used interchangeably, although meanings are different. – Capitalism stands for the private ownership of resources. – Free enterprise is the unhindered use of privately owned resources to earn profits. Characteristics of Free Enterprise Capitalism
Characteristics of Free EnterpriseCapitalism The American economy incorporates the main characteristics of a free enterprise economy.
Characteristics of Free EnterpriseCapitalism (cont.)• There are five major characteristics of a free enterprise economy:–Economic freedom–Voluntary exchange– Private property rights • Private property gives individuals incentive to work, save, and invest.– Profit motive • People are free to take risks to earn a profit.– Competition
The Role of the Entrepreneur Entrepreneurs are the driving force of the free enterprise system.
The Role of the Entrepreneur (cont.)• Entrepreneurs – Organize and manage land, capital, and labor to gain a profit – Are the people who start up new businesses – Want to “be their own boss” – Are willing to take risks
The Role of the Entrepreneur (cont.)• Entrepreneurs are both the spark plug and the catalyst of the free enterprise economy.• Their search for profits leads to a chain of events that brings – New products – Greater competition – More production – Higher quality – Lower prices for consumers Profiles in Economics:Question #7, p. 53; Tony Hawk, p. 54, #1-2 Tony Hawk
The Role of the Consumer The economy in the United States adapts to consumers’ wants. Of course… wanting a good or service is not enough. To be a consumer, one must be able to PAY for the good or service.
The Role of the Consumer (cont.)• Consumers ultimately determine which products are produced.• If consumers like a new product, producers are rewarded with profits.• Consumers not purchasing a product can cause a firm to go out of business.
The Role of the Consumer (cont.)• The phrase “the customer is always right” recognizes consumer sovereignty.• Consumers are always looking for new ideas and products.Question #4, p. 53
The Role of the Government The economic role of the U.S. government is decided by its citizens.
The Role of the Government (cont.)• The role of government stems from the desires, goals, and aspirations of its citizens.• Government has become – A protector – Provider – Regulator – Consumer
The Role of the Government (cont.)• In general, the role of government in the economy is justified whenever the benefits outweigh the costs.• An unintended consequence of government’s role is the emergence of the mixed or modified free enterprise economy.
The Role of the Government (cont.)• Some people prefer to have no government involvement in the economy— which is not possible.• Services like a national defense and a system of laws and justice cannot be supplied by the private sector alone.Question #6, p. 53