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Economics lesson 2


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this is to help you in economics class. book used: Holt Economics isbn: 0-03-066336-9

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Economics lesson 2

  1. 1. Economics, Ch. 2 Economic systems 2.1, 2.2, 2.3 1
  2. 2. • What to produce• How to produce• For whom to produce.• A nations responses are determined by its economic system, which reflects the process a nation follows to produce goods and services.Review: What are the threebasic economic questions? 2
  3. 3. • Traditional, command, market and mixed.• All economies today are mixed, a pure economy doesn’t exist• Mixed economies that are closest to the pure command model are classified as command economies. Same with other types of economies.What are the four types ofeconomic systems? 3
  4. 4. • Based on a societies values, customs and traditions.• Tradition decides what you produce. If your family has always caught fish, your family will most likely always catch fish. Roles are usually passed down from father to son and mother to daughter.• Traditional economies still exist in parts of N. America, Asia, Africa, San of the Kalahari Desert and the Aborigines of Australia.Traditional Economy 4
  5. 5. • They are found in the past. Contemporary economic activities are based on the collection of rituals, habits, laws and religious beliefs developed by the groups ancestors.• For whom? The entire group or tribeHow are the three basic economicquestions answered in traditionaleconomies? 5.1
  6. 6. • The government has complete control over production.• Also called planned economies• Individuals in a command economy have little or no say in economic choices.• Command economies were popular in the past. Egypt (2700-2200 b.c.), China (1122-221 b.c.), western europe in the middle ages.Command Economy 6
  7. 7. • Relies on government officials to answer the three basic economic questions.• Officials, or central planners, have the power to decide what products will be produced and how.• They also decide who will receive the products.How are the three basic economicquestions answered in commandeconomies? 7
  8. 8. • People can buy, sell and produce anything.• Market – free exchange of goods and services.• Ex. US, Germany, and JapanMarket economy 8
  9. 9. • Individuals answer the three basic questions.• For whom? Everyone• How? Anyway• What? anythingHow are the three economicquestions answered in marketeconomies? 9
  10. 10. • Self-interest benefits all of society by helping the economy grow.• In a market exchange, each person attempts to gain the greatest possible advantage.• Self-interests serve as an “invisible hand” that leads them to do what is best for society.• Incentive – something that encourages you to act in a certain way.• Examples of incentives include commercials, billboards, ads, etc..What are the roles of self-interestand incentives in a marketeconomy? 2.1
  11. 11. • Authoritarian socialism – (communism) the government controls nearly all the factors of production which in turn limits the decision making power of individuals. Ex. Cuba• Capitalism – individuals own the factors of production and answer the basic economic questions. Ex. US, Canada, Mexico, Japan and Taiwan. The governments involvement in the economy is limited.• Democratic socialism – the government owns only some of the factors of production like phone and electrical utilities. Ex. Sweden, Poland, France, Tanzania, Angola, and Mozambique.What types of mixedeconomies exist today? 2.1
  12. 12. • Individuals have the right to: • Own private property • Make individual choices, • Engage in economic competition • Make decisions based on self-interest and • Have limited government interference when participating in the economy (laissez-faire)What are the basic principalsof free enterprise in the US? 2.2
  13. 13. • Product market: all of the exchanges of goods and services in the economy• Resource market: exchange between the resources between those who use them.What are the 2 markets inthe circular flow model? 2.2
  14. 14. • Its shows the exchanges between the flow of resources and the flow of payments.How does the circular flowmodel reflect exchange? 2.2
  15. 15. • They set goals. A nation’s policymaker makes choices on how to use scarce resources depending on the goals that are set.How do nations decide howto use scarce resources? 2.3
  16. 16. • The US economic goals are freedom, efficiency, equity, security, stability, and growth.• Economic freedom: maintaining freedom of choice in the marketplace.• Economic efficiency: efforts to make the best use of scarce resources.• Economic equity: (economic justice) fairness of choices in economy• Economic security: protection from poverty, medical emergencies and other things that could put someone’s economic well-being in danger.• Economic stability: full employment and stable prices.• Economic growth: increase the amount of goods and services put out by each worker in the economy.What are the major goals ofthe US economic policy? 2.3
  17. 17. • People’s needs and wants may conflict, priorities can conflict, solutions can conflict and priorities can change.• To fix this, the nation will depict what economic goals are more important, then assign which goal they will plan to meet first.Why do economic goalssometimes conflict? 2.3