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Chapter 2  Economic Systems and the American             Economy*
Learning Goal: Explain how economicsystems answer basic questions aboutproduction and distribution of goods andservicesSec...
Define economic system
Way in which a nation uses its resources to satisfy its people’s needs and wants*
What three questions must all economic            systems answer?
• What should be produced?*  • How should it be produced?*• For whom should it be produced?*
Does a pure economic system really               exist?
No- they are all mixed economies to             some degree
What are the major types of economic   systems and their differences?
• Traditional• Command  • Market  • Mixed*
Define traditional economy
System in which economic decisions are based on customs and beliefs that have  been handed down from generation to        ...
Traditional • Answers the three basic questions         according to tradition• Things are done, “the way they have       ...
Traditional           Examples   • Inuit of North America• San of the Kalahari in Africa   • Aborigines of Australia
Traditional              Advantages:      • Everyone knows their role• Little uncertainty of what and how to       produce...
Traditional          Disadvantages:• Discourages new ideas/technology • Punishes people who break rules     • Lower standa...
Define command economy
System in which the governmentcontrols the factors of production and makes all decisions about their use*
Command   • Government decides questions of              production• Example: Former USSR , Cuba, North           Korea, a...
Command              Advantages:  • Speed in which resources can be    rerouted (agriculture to industry)• Little uncertai...
Command              Disadvantages:• Not designed for customer wants-basic               needs provided • Sacrifice for th...
Command            Disadvantages:• No incentive to work hard-just enough               to fill quota         • Large burea...
Command             Disadvantages:• Little flexibility-discourages change • Individual abilities not considered*
Define market system
System in which individuals own the    factors of production and make   economic decisions through freeinteraction while l...
Market• People and firms act in their own best                interests• Allow buyers/sellers to come together      to exc...
Define market
Freely chosen activity between buyers   and sellers of goods and services
Market           Advantages:• Over time can adjust to change      • Individual freedom• Little government interference• De...
Market             Advantages:   • Variety of goods and services     • High consumer satisfaction• Freedom to chose career...
Define circular flow of economic activity
Economic model that pictures income as     flowing continuously between       businesses and consumers
Market            Disadvantages:• Doesn’t provide for basic needs of all               members  • Doesn’t provide enough s...
Market            Disadvantages:• High degree of uncertainty for workers              and business
Market              Disadvantages: • Can fail if three conditions are not met    4. Reasonably competitive markets5. Resou...
Define mixed economy
System combining characteristics of  more than one type of economy*
Mixed• Combines the basic elements of a pure    market economy and a command               economy
Section 2    Characteristics of the American              Economy*
Learning Goal: Identify and explain the six major   characteristics of a pure market              economy?
I.   The six characteristics of a pure            market economy•    Little or no government control•    Freedom of enterp...
Explain why a pure market economic system  Requires little or no government control.
Limited Role of Government         Adam Smith: • Described a system in whichgovernment had little to do with a    nations ...
1. Limited Role of Government• Stated that individuals left on their   own would work for their own self-                 ...
Identify the term used to explain Smith’s  version of the ideal economic system.
Capitalism
Define capitalism
Economic system in which private    individuals own the factors ofproduction and decide how to use them        within legi...
The government lets people andbusinesses make their own economicdecisions w/o government constraints
Identify the other term used for pure              capitalism.
Laissez-faire system
Define laissez-faire
Economic system in which thegovernment minimizes its interference        with the economy
1. Limited Role of Government • Since the 1880’s, the role ofgovernment-federal, state, and local-          has increased
Explain how the government’s role over  the economy has increased since the                 1880’s
Federal agencies regulate the quality of  various foods and drugs, watch over    the nation’s money, and banking     syste...
• The federal government also uses tax   revenues to provide social programs  such as Social Security and Medicare   • Sta...
Freedom of Enterprise• The American economy is also called a         free enterprise system
Define free enterprise system
Economic system in which individuals   own the factors of production and  decide how to use them within legal       limits...
Explain how the government restricts           free enterprise.
Freedom of Enterprise• Zoning regulations, child-labor laws ,   hazardous waste disposal rules, and              other reg...
Freedom of Choice• Buyers, not sellers, make the decisions     about what should be produced
Profit Incentive  • When a person invests time, know-       how, money, and other capital   resources in a business, the g...
Private Property• One of the most important characteristics of capitalism
Define private property
Whatever is owned by individuals rather          than by government
Define profit
Money left after all the costs ofproduction-wages, rents, interests, and        taxes-have been paid
Define profit incentive
Desire to make a money that motivates people to produce and sell goods and                services
Describe the rights of property.
• The rights of humans to riskinvestment, own and produce assets,  learn new ways of producing, and  enjoy the benefits if...
Competition  • Encouraged by the lure of profits• Leads to an efficient use of resources   • Forces businesses to keep the...
Define competition
Rivalry among producers or sellers ofsimilar goods and services to win more               business
Section 3       The Goals of the Nation
Learning Goal:Identify the goals of free enterprise.
Goals of free enterprise • Economic Freedom• Economic Efficiency   • Economic Equity • Economic Security • Economic Stabil...
Economic Freedom• Goal: To allow each member of     society to make choices
Which country has the highest degree of         economic freedom?
United States of America
Identify the consequences of economic                freedom.
If a business fails, the government won’t                   help out
Economic Efficiency• Wise use of available resources so that       costs do not exceed benefits • We must always be watchf...
Economic Equity• The attempt to balance an economic policy so that everyone benefits faily
Economic Security• Security is provided through a number     of government social programs
Economic Stability• Goal: To reduce the extreme ups and     downs in the standard of living• The standard of living is mea...
Define standard of living
The material well-being of an individual, group, or nation measured by how well    their necessities and luxuries are     ...
Economic Growth• Expansion of the economy to produce     more goods, jobs, and wealth
What is required to for a nation to    achieve economic goals?
Trade-offs
Explain the responsibilities associated with a well-functioning free enterprise                system.
Individual responsibilities  • Ability to support yourself and your                   family• Responsibility to use your e...
Individual responsibilities• Individuals have the responsibility of    electing responsible government                 off...
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2.economic system and the american economy

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2.economic system and the american economy

  1. 1. Chapter 2 Economic Systems and the American Economy*
  2. 2. Learning Goal: Explain how economicsystems answer basic questions aboutproduction and distribution of goods andservicesSection 1 Economic Systems*
  3. 3. Define economic system
  4. 4. Way in which a nation uses its resources to satisfy its people’s needs and wants*
  5. 5. What three questions must all economic systems answer?
  6. 6. • What should be produced?* • How should it be produced?*• For whom should it be produced?*
  7. 7. Does a pure economic system really exist?
  8. 8. No- they are all mixed economies to some degree
  9. 9. What are the major types of economic systems and their differences?
  10. 10. • Traditional• Command • Market • Mixed*
  11. 11. Define traditional economy
  12. 12. System in which economic decisions are based on customs and beliefs that have been handed down from generation to generation*
  13. 13. Traditional • Answers the three basic questions according to tradition• Things are done, “the way they have always been done.” • Economic decisions are based on customs and beliefs-often religious- handed down from generation to generation*
  14. 14. Traditional Examples • Inuit of North America• San of the Kalahari in Africa • Aborigines of Australia
  15. 15. Traditional Advantages: • Everyone knows their role• Little uncertainty of what and how to produce, for whom is usually themselves
  16. 16. Traditional Disadvantages:• Discourages new ideas/technology • Punishes people who break rules • Lower standard of living
  17. 17. Define command economy
  18. 18. System in which the governmentcontrols the factors of production and makes all decisions about their use*
  19. 19. Command • Government decides questions of production• Example: Former USSR , Cuba, North Korea, and China
  20. 20. Command Advantages: • Speed in which resources can be rerouted (agriculture to industry)• Little uncertainty-decisions made for you • Some education, healthcare, public services, available at little or no cost
  21. 21. Command Disadvantages:• Not designed for customer wants-basic needs provided • Sacrifice for the good of the state and benefit for future generations
  22. 22. Command Disadvantages:• No incentive to work hard-just enough to fill quota • Large bureaucracy
  23. 23. Command Disadvantages:• Little flexibility-discourages change • Individual abilities not considered*
  24. 24. Define market system
  25. 25. System in which individuals own the factors of production and make economic decisions through freeinteraction while looking out for theirown and their families’ best interests*
  26. 26. Market• People and firms act in their own best interests• Allow buyers/sellers to come together to exchange goods or services • Ex. U.S., Japan, Germany
  27. 27. Define market
  28. 28. Freely chosen activity between buyers and sellers of goods and services
  29. 29. Market Advantages:• Over time can adjust to change • Individual freedom• Little government interference• Decentralized decision making
  30. 30. Market Advantages: • Variety of goods and services • High consumer satisfaction• Freedom to chose career, spend their income how they wish, own private property, take risks and earn profits
  31. 31. Define circular flow of economic activity
  32. 32. Economic model that pictures income as flowing continuously between businesses and consumers
  33. 33. Market Disadvantages:• Doesn’t provide for basic needs of all members • Doesn’t provide enough services people highly value*
  34. 34. Market Disadvantages:• High degree of uncertainty for workers and business
  35. 35. Market Disadvantages: • Can fail if three conditions are not met 4. Reasonably competitive markets5. Resources able to move from one activity to another6. Consumer access to information to make wise choices 7. Government helps to ensure these*
  36. 36. Define mixed economy
  37. 37. System combining characteristics of more than one type of economy*
  38. 38. Mixed• Combines the basic elements of a pure market economy and a command economy
  39. 39. Section 2 Characteristics of the American Economy*
  40. 40. Learning Goal: Identify and explain the six major characteristics of a pure market economy?
  41. 41. I. The six characteristics of a pure market economy• Little or no government control• Freedom of enterprise• Freedom of choice• Private property• The profit incentive• Competition
  42. 42. Explain why a pure market economic system Requires little or no government control.
  43. 43. Limited Role of Government Adam Smith: • Described a system in whichgovernment had little to do with a nations economic activity
  44. 44. 1. Limited Role of Government• Stated that individuals left on their own would work for their own self- interest • They would then be guided by an “invisible hand” to use resources efficiently and thus achieve the maximum good for society
  45. 45. Identify the term used to explain Smith’s version of the ideal economic system.
  46. 46. Capitalism
  47. 47. Define capitalism
  48. 48. Economic system in which private individuals own the factors ofproduction and decide how to use them within legislated limits
  49. 49. The government lets people andbusinesses make their own economicdecisions w/o government constraints
  50. 50. Identify the other term used for pure capitalism.
  51. 51. Laissez-faire system
  52. 52. Define laissez-faire
  53. 53. Economic system in which thegovernment minimizes its interference with the economy
  54. 54. 1. Limited Role of Government • Since the 1880’s, the role ofgovernment-federal, state, and local- has increased
  55. 55. Explain how the government’s role over the economy has increased since the 1880’s
  56. 56. Federal agencies regulate the quality of various foods and drugs, watch over the nation’s money, and banking system, inspect workplaces for hazardous conditions, and guard against damage to the environment
  57. 57. • The federal government also uses tax revenues to provide social programs such as Social Security and Medicare • State and local government have expanded their roles in such areas as education, job training, recreation, and care for the elderly.
  58. 58. Freedom of Enterprise• The American economy is also called a free enterprise system
  59. 59. Define free enterprise system
  60. 60. Economic system in which individuals own the factors of production and decide how to use them within legal limits; same as capitalism
  61. 61. Explain how the government restricts free enterprise.
  62. 62. Freedom of Enterprise• Zoning regulations, child-labor laws , hazardous waste disposal rules, and other regulations• All limit free-enterprise to protect you
  63. 63. Freedom of Choice• Buyers, not sellers, make the decisions about what should be produced
  64. 64. Profit Incentive • When a person invests time, know- how, money, and other capital resources in a business, the goal is to make a profit• The desire of profit incentive motivates entrepreneurs to establish new business and produce new kinds of goods and servicesw
  65. 65. Private Property• One of the most important characteristics of capitalism
  66. 66. Define private property
  67. 67. Whatever is owned by individuals rather than by government
  68. 68. Define profit
  69. 69. Money left after all the costs ofproduction-wages, rents, interests, and taxes-have been paid
  70. 70. Define profit incentive
  71. 71. Desire to make a money that motivates people to produce and sell goods and services
  72. 72. Describe the rights of property.
  73. 73. • The rights of humans to riskinvestment, own and produce assets, learn new ways of producing, and enjoy the benefits if these choices result in profits
  74. 74. Competition • Encouraged by the lure of profits• Leads to an efficient use of resources • Forces businesses to keep their production costs as low as possible • For competition to exist, barriers to enter and exit from industries must be weak
  75. 75. Define competition
  76. 76. Rivalry among producers or sellers ofsimilar goods and services to win more business
  77. 77. Section 3 The Goals of the Nation
  78. 78. Learning Goal:Identify the goals of free enterprise.
  79. 79. Goals of free enterprise • Economic Freedom• Economic Efficiency • Economic Equity • Economic Security • Economic Stability • Economic Growth
  80. 80. Economic Freedom• Goal: To allow each member of society to make choices
  81. 81. Which country has the highest degree of economic freedom?
  82. 82. United States of America
  83. 83. Identify the consequences of economic freedom.
  84. 84. If a business fails, the government won’t help out
  85. 85. Economic Efficiency• Wise use of available resources so that costs do not exceed benefits • We must always be watchful that the costs of our economic actions do not exceed the benefits
  86. 86. Economic Equity• The attempt to balance an economic policy so that everyone benefits faily
  87. 87. Economic Security• Security is provided through a number of government social programs
  88. 88. Economic Stability• Goal: To reduce the extreme ups and downs in the standard of living• The standard of living is measured by the average value of goods and services used by the average citizen during a given period of time
  89. 89. Define standard of living
  90. 90. The material well-being of an individual, group, or nation measured by how well their necessities and luxuries are satisfied
  91. 91. Economic Growth• Expansion of the economy to produce more goods, jobs, and wealth
  92. 92. What is required to for a nation to achieve economic goals?
  93. 93. Trade-offs
  94. 94. Explain the responsibilities associated with a well-functioning free enterprise system.
  95. 95. Individual responsibilities • Ability to support yourself and your family• Responsibility to use your education in a reasonable manner that helps you become a productive member of the free enterprise system
  96. 96. Individual responsibilities• Individuals have the responsibility of electing responsible government officials

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