Chapter 2 And 3


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Chapter 2 And 3

  1. 1. Chapter 2 & 3 Economic Systems
  2. 2. Three Economic Questions <ul><li>What goods will be produced ? – Because of scarcity, not everything can be produced </li></ul><ul><li>How will the goods be produced ? – What methods and resources will producers use </li></ul><ul><li>For whom will the goods be produced ? – Who are the goods intended for </li></ul>
  3. 3. Two Major Economic Systems <ul><li>Free Enterprise – aka: Market Economy, Free Market Economy, Capitalism </li></ul><ul><li>Socialism – aka: Command Economy, Planned Economy </li></ul>
  4. 4. Free Enterprise <ul><li>Individuals own most of the resources and control their use </li></ul><ul><li>Resources are privately owned </li></ul><ul><li>Government plays a small role in the economy </li></ul><ul><li>Little attention is paid to income distribution, large gap between rich and poor </li></ul><ul><li>Prices fluctuate with the forces of supply and demand </li></ul><ul><li>Individuals may own private property </li></ul>
  5. 5. Socialism <ul><li>Government owns and controls most of the resources </li></ul><ul><li>Board of central planners makes all economic decisions </li></ul><ul><li>Planners create an economic plan for decision making </li></ul><ul><li>Government controls and sets prices </li></ul><ul><li>Government owns much of the land </li></ul>
  6. 6. Mixed Economy <ul><li>Neither purely capitalist or socialist, but has some elements of both </li></ul><ul><li>Example – China </li></ul>
  7. 7. Adam Smith – Free Market Visionary <ul><li>Wrote The Nature and Causes of the Wealth of Nations </li></ul><ul><li>Believed self interests </li></ul><ul><li>caused people to work </li></ul><ul><li> harder and take risks </li></ul><ul><li>Division of labor creates </li></ul><ul><li>greater productivity and wealth </li></ul><ul><li>Competition keeps prices down </li></ul><ul><li>and quality up </li></ul><ul><li>Government should provide </li></ul><ul><li>services: defense, justice, </li></ul><ul><li>public works </li></ul>
  8. 8. Karl Marx – Father of Socialism <ul><li>Wrote Das Kapital </li></ul><ul><li>Believed all value </li></ul><ul><li>in goods comes </li></ul><ul><li>from the labor </li></ul><ul><li>required to produce them </li></ul><ul><li>Capitalist exploit workers </li></ul><ul><li>Promoted an egalitarian economic society </li></ul>
  9. 9. Globalization <ul><li>A phenomenon by which economic agents in any given part of the world are effected by events elsewhere in the world </li></ul><ul><ul><ul><ul><ul><li>Growing international interdependence </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Movement towards a single world economy </li></ul></ul></ul></ul></ul>
  10. 10. Three Causes of Globalization <ul><li>End of the Cold War – increase in world trade after political and economic barriers were broken down </li></ul><ul><li>Advanced Technology – lower transportation and communication costs = fewer trade barriers </li></ul><ul><li>Policy Changes – open and free trade policies </li></ul>
  11. 11. Costs of Globalization <ul><li>Increase in income inequality </li></ul><ul><li>Loss of American jobs </li></ul><ul><ul><li>Offshoring – work done for a company by people from another company in a foreign country </li></ul></ul><ul><li>More power to big corporations </li></ul>
  12. 12. Benefits of Globalization <ul><li>Increase in world trade </li></ul><ul><li>Increase in the standard of living for some people </li></ul><ul><li>Cheaper manufactured goods for American consumers </li></ul>
  13. 13. Globalization Videos <ul><li>No Logo: Brands, Globalization & Resistance </li></ul><ul><li>Homer goes to India </li></ul>
  14. 14. Five Features of Free Enterprise <ul><li>Private Property – individuals can own their own businesses, cars. Houses, and factories </li></ul><ul><li>Choice – workers have the right to choose what work they want to do and who they work for. Consumers choose what they want to buy. Businesses decide what they want to produce. </li></ul><ul><li>Voluntary Exchange – exchanging money for goods and services </li></ul><ul><li>Competition – gives consumers a larger selection, higher quality goods, and keeps prices down </li></ul><ul><li>Economic Incentives – money is an incentive to produce desirable, high quality goods </li></ul>
  15. 15. Profits and Losses <ul><li>Profits – money left over after all the costs of production have been paid </li></ul><ul><li>Losses – amount of money in which total cost exceeds revenue </li></ul>
  16. 16. Entrepreneurs <ul><li>A person who has a talent for searching out and taking advantage of new business opportunities </li></ul><ul><li>More than 80% will fail </li></ul><ul><li>If they are successful, entrepreneurs have the potential to make huge profits depending of the extent of their success </li></ul>