The document discusses different types of economic systems including traditional, command, and market economies. Traditional economies are exemplified by indigenous groups like the Inuit who share resources based on custom. Command economies centralized major economic decisions in the government as seen in North Korea and Cuba, while market economies like the US allow private individuals and businesses to make decisions.

1. Chapter 2:
Economic Systems and Decision
Making
Section 1: Economic Systems
Section 2: Evaluating Economic
Performance

2. Things to look for…(section 1)
 What are the 3 main kinds of economic systems?
 Give an example of each kind of economic
system.
 Give two examples of market locations.

3. Economic Systems
 Economic System – an organized way of
providing for the wants and needs of the people
of a particular society.
 Three major kinds of economic systems exist
although most economies combine elements of
all three to form mixed economies.
 *The three major kinds of economic systems are
traditional economies, command economies, and
market economies.

4. Traditional Economy
 In a society with a traditional economy, the use
of scarce resources and nearly all economic
activity stems from ritual, habit, or custom.
 They also dictate social behaviors.
 Individuals cannot make their own decisions of
what they want or would like to have.
 Their roles are defined by the customs of the
elders and/or their ancestors.

5. Traditional Economy
 *An example of a traditional economy would be
societies like the Australian Aborigines, the Mbuti
in central Africa, or the Inuit of northern Canada.
 Their customs dictated that they share everything
with one another, such as a bear or walrus that
they hunted and killed.
 This provided meat, clothing, and shelter for
entire villages for the extremely cold winters.
 Due to these customs, the Inuit survived
thousands of years.

6. Traditional Economy
 The main advantage of this economic system is
that every person in the society knows their role.
 There is little to no doubt of what is expected of
you.
 The main disadvantage is that it tends to
discourage new ideas and new ways of doing
things.
 This lack of progress leads to stagnation and a
lower standard of living than other economic
systems.

7. Command Economy
 In a Command Economy, a central authority
makes the major decisions about what, how, and
for whom to produce.
 In a pure command economy, the government
makes the major economic decisions.
 This means that the government decides if
houses will be built, how they will be built, and for
whom they will be built.
 Most command economies limit private property
rights.

8. Command Economy
 Most people are not allowed to own their
homes, businesses, or other productive
resources.
 Individual rights or freedoms are also limited.
 For example, if the government wants more
mathematicians, then the universities train more
mathematicians.
 This limits personal choice.
 Government officials usually make choices that
favor themselves (homes, vacations, cars, etc.).

9. Command Economy
 *Modern examples are hard to find but North
Korea and Cuba are pure command economies.
 In the 1970’s and 1980’s, the Soviet Union was
the biggest example of a command economy.
 In the former USSR, the State Planning
Commission determined needs, set goals, and
allocated resources to the sector which they felt
the country most needed.

10. Command Economy
 The main advantage of this economic system is
that it can change direction drastically.
 The former USSR went from a rural agricultural
society to an industrial powerhouse in just a few
decades by emphasizing industrial growth.
 Some disadvantages are that they ignore basic
wants/needs of consumers, encourage meeting
quotas rather than making good products, and
need a large decision-making bureaucracy that is
unable to deal with minor day-to-day issues.

11. Market Economy
 In a market economy, people make decisions
that are in their own best interest.
 A market is an arrangement that allows buyers
and sellers to come together to exchange goods
and services.
 *A market can be a physical location such as a
farmer’s market, or a virtual location such as
eBay.
 Market economies are characterized by a great
deal of freedom.

12. Market Economy
 Consumers determine what to produce by their
purchases.
 Businesses are free to find the best method of
production when determining how to produce.
 The income that consumers earn and spend in
the market determines for whom to produce.
 They also have private ownership of resources.
 This economic system is based on capitalism
(an economic system where private citizens own
the factors of production).

13. Market Economy
 *Examples would include the United States,
Japan, South Korea, Australia, Singapore, Great
Britain, and parts of Western Europe.
 Many of the above countries are among the most
prosperous in the world.
 While there are differences between these
countries’ systems, they share the common
elements of markets and the private ownership of
resources to seek profits.

14. Market Economy
 Advantages include a high degree of individual
freedom, gradual adjustments to change over
time, a relatively small amount of government
interference, decision-making is decentralized, a
large variety of goods and services, and a high
degree of consumer satisfaction.
 Disadvantages are that this system does not
provide for everyone (very young, very
old, sick, etc.), may not provide enough basic
goods and services, and a high degree of
uncertainty.

15. Mixed Economy
 Most countries have a mixed economy (systems
that combine elements of all three types).
 Examples are socialism and communism.
 In socialism, the government owns some but not
all of the basic productive resources.
 Socialist governments also provide health care.
 Communism is an extreme form of socialism
where all property is collectively, not
privately, owned.
 Communism rarely is practiced as designed.

16. Mixed Economy
 Examples include China and Norway
 One major advantage would be providing for
some people who might otherwise be left out.
 One major disadvantage is that the more services
and higher benefits provided by the government
often lead to higher costs to the people.
 Germany, for example, offers many benefits but
also has one of the highest tax rates in the world.
 Historically, capitalism has proven more effective
than either socialism or communism.

17. Q and A
 What are the 3 main kinds of economic systems?
 Traditional economies, command economies, and
market economies.
 Give an example of each kind of economic
system.
 Traditional – Inuit of northern Canada, Command
– North Korea, Market – United States
 Give two examples of market locations.
 Physical – farmer’s market, Virtual – eBay

18. Open-book/open-notebook Quiz
 Go to page 56 and answer numbers 17 – 20.
 This is a 100 point quiz, you may use your notes
and book…
 and, if need be, me.

19. Things to look for…(section 2)
 What are the 7 major economic goals shared by
most Americans?

20. 7 Economic Goals
 *The seven major economic goals shared by
most Americans:
1. Economic Freedom
2. Economic Efficiency
3. Economic Equity
4. Economic Security
5. Full Employment
6. Price Stability
7. Economic Growth

21. Economic Freedom
 Americans traditionally value the freedom to
make their own economic decisions.
 Individuals like to choose their own
occupations, employers, and uses for the money.
 Businesses like to choose where and how they
produce.

22. Economic Efficiency
 Most people recognize that resources are scarce
and that factors of production must be used
wisely.
 If resources are wasted, fewer goods and
services can be produced.
 This means that fewer wants and needs can be
satisfied.

23. Economic Equity
 Americans have a strong tradition of justice,
impartiality, and fairness.
 It is illegal to discriminate on the basis of age,
sex, race, religion, or disability in employment.
 As a nation, we have developed a minimum
wage.
 Minimum Wage – the lowest legal wage that can
be paid to most workers.
 Most people believe that advertisers should not
be allowed to make false statements.

24. Economic Security
 Americans desire protection from such adverse
economic events as layoffs and illnesses.
 This is why we have developed unemployment
benefits when you lose your job due to no fault of
your own.
 This is also why many companies have insurance
plans for their employees.
 Nationally, Congress has set up Social Security
– a federal program of disability and retirement
benefits that covers most working people.

25. Full Employment
 When people work, they earn income by
producing goods and services for others.
 Without jobs, people cannot support themselves
or their families.
 The goal of full employment even became law
when Congress passed the Employment Act of
1946 in an effort to avoid the widespread
joblessness before World War II.

26. Price Stability
 Another goal is to have price stability.
 If inflation occurs, workers need more money to
pay for food, clothing, and shelter.
 Inflation – a rise in the general level of prices
 People who live on a fixed income find that bills
are harder to pay and planning for the future is
more difficult.
 Fixed Income – an income that does not
increase even though prices go up.

27. Price Stability
 High rates of inflation can discourage business
activity.
 Interest rates on loans tend to increase with the
price of goods and services.
 When interest rates get too high, borrowing and
spending by businesses can be discouraged also.

28. Economic Growth
 Most people hope to have a better job, a newer
car, their own home, and a number of other things
in the future.
 Overall growth enables more people to have
more goods and services.
 Since the nation’s population is likely to
increase, economic growth is necessary to meet
everyone’s needs.

29. Economic vs. Social Goals
 A society resolves the conflict between economic
and social goals by comparing their estimate of
the costs to their estimate of the benefits, and
then they vote for political candidates who best
represent those positions.

30. Q and A
 What are the 7 major economic goals shared by
most Americans?
1. Economic Freedom
2. Economic Efficiency
3. Economic Equity
4. Economic Security
5. Full Employment
6. Price Stability
7. Economic Growth

31. Open Book/Open Notebook Quiz
 Go to page 56 and answer numbers 21 – 23.
 This is a 100 point quiz, you may use your notes
and book…
 And your magic 8 ball.