The document defines different types of economic systems and characteristics of the American economy. It discusses traditional, command, market, and mixed economies. The key aspects of a market economy outlined are private property, profit incentive, freedom of choice, competition, and limited government control. However, the US has a mixed economy with government intervention to ensure economic goals like freedom, efficiency, equity, security, stability, and growth. Individuals have responsibilities in a free market system to support themselves, use education productively, and elect responsible officials.

1. Chapter 2 Economic Systems and the American Economy*

2. Section 2 Economic Systems*

3. Define economic system

4. Way in which a nation uses its resources to satisfy its people’s needs and wants*

5. What three questions must all economic systems answer?

6. What should be produced?* How should it be produced?* For whom should it be produced?*

7. Does a pure economic system really exist?

8. No- they are all mixed economies to some degree

9. What are the major types of economic systems and their differences?

10. Traditional Command Market Mixed*

11. Define traditional economy

12. System in which economic decisions are based on customs and beliefs that have been handed down from generation to generation*

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. Traditional Examples Inuit of North America San of the Kalahari in Africa Aborigines of Australia

15. Traditional Advantages: Everyone knows their role Little uncertainty of what and how to produce, for whom is usually themselves

16. Traditional Disadvantages: Discourages new ideas/technology Punishes people who break rules Lower standard of living

17. Define command economy

18. System in which the government controls the factors of production and makes all decisions about their use*

19. Command Government decides questions of production Example: Former USSR , Cuba, North Korea, and China

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. Command Disadvantages: Not designed for customer wants-basic needs provided Sacrifice for the good of the state and benefit for future generations

22. Command Disadvantages: No incentive to work hard-just enough to fill quota Large bureaucracy

23. Command Disadvantages: Little flexibility-discourages change Individual abilities not considered*

24. Define market system

25. System in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own and their families’ best interests*

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. Define market

28. Freely chosen activity between buyers and sellers of goods and services

29. Market Advantages: Over time can adjust to change Individual freedom Little government interference Decentralized decision making

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. Define circular flow of economic activity

32. Economic model that pictures income as flowing continuously between businesses and consumers

33. Market Disadvantages: Doesn’t provide for basic needs of all members Doesn’t provide enough services people highly value*

34. Market Disadvantages: High degree of uncertainty for workers and business

35. Market Disadvantages: Can fail if three conditions are not met Reasonably competitive markets Resources able to move from one activity to another Consumer access to information to make wise choices Government helps to ensure these*

36. Define mixed economy

37. System combining characteristics of more than one type of economy*

38. Mixed Combines the basic elements of a pure market economy and a command economy

39. Section 2 Characteristics of the American Economy*

40. Identify and explain the six major characteristics of a pure market economy?

41. 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. Explain why a pure market economic system Requires little or no government control.

43. Limited Role of Government Adam Smith: Described a system in which government had little to do with a nations economic activity

44. 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. Identify the term used to explain Smith’s version of the ideal economic system.

46. Capitalism

47. Define capitalism

48. Economic system in which private individuals own the factors of production and decide how to use them within legislated limits

49. The government lets people and businesses make their own economic decisions w/o government constraints

50. Identify the other term used for pure capitalism.

51. Laissez-faire system

52. Define laissez-faire

53. Economic system in which the government minimizes its interference with the economy

54. Limited Role of Government Since the 1880’s, the role of government-federal, state, and local-has increased

55. Explain how the government’s role over the economy has increased since the 1880’s

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. 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. Freedom of Enterprise The American economy is also called a free enterprise system

59. Define free enterprise system

60. Economic system in which individuals own the factors of production and decide how to use them within legal limits; same as capitalism

61. Explain how the government restricts free enterprise.

62. Freedom of Enterprise Zoning regulations, child-labor laws , hazardous waste disposal rules, and other regulations All limit free-enterprise to protect you

63. Freedom of Choice Buyers, not sellers, make the decisions about what should be produced

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. Private Property One of the most important characteristics of capitalism

66. Define private property

67. Whatever is owned by individuals rather than by government

68. Define profit

69. Money left after all the costs of production-wages, rents, interests, and taxes-have been paid

70. Define profit incentive

71. Desire to make a money that motivates people to produce and sell goods and services

72. Describe the rights of property.

73. The rights of humans to risk investment, own and produce assets, learn new ways of producing, and enjoy the benefits if these choices result in profits

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. Define competition

76. Rivalry among producers or sellers of similar goods and services to win more business

77. Section 3 The Goals of the Nation

78. Identify the goals of free enterprise.

79. Goals of free enterprise Economic Freedom Economic Efficiency Economic Equity Economic Security Economic Stability Economic Growth

80. Economic Freedom Goal: To allow each member of society to make choices

81. Which country has the highest degree of economic freedom?

82. United States of America

83. Identify the consequences of economic freedom.

84. If a business fails, the government won’t help out

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. Economic Equity The attempt to balance an economic policy so that everyone benefits faily

87. Economic Security Security is provided through a number of government social programs

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. Define standard of living

90. The material well-being of an individual, group, or nation measured by how well their necessities and luxuries are satisfied

91. Economic Growth Expansion of the economy to produce more goods, jobs, and wealth

92. What is required to for a nation to achieve economic goals?

93. Trade-offs

94. Explain the responsibilities associated with a well-functioning free enterprise system.

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. Individual responsibilities Individuals have the responsibility of electing responsible government officials