What are the three What are the three Economic Questions?Economic Questions?

Students will compare the major Students will compare the major economic systems in the world and economic systems in the world and

examine their ability to provide citizens examine their ability to provide citizens with social and economic freedoms.with social and economic freedoms.

The Three Basic Economic The Three Basic Economic QuestionsQuestions

1. What goods and services should be 1. What goods and services should be produced? produced?

2. How should these goods and services 2. How should these goods and services be produced? be produced?

3. Who consumes these goods and 3. Who consumes these goods and services?services?

What goods and services should What goods and services should be produced?be produced?

Basic Needs-Basic Needs- food, clothing and shelter food, clothing and shelter

Problems in Modern Societies-Problems in Modern Societies-

- How many resources do we devote to national - How many resources do we devote to national defense, education, public health, welfare, defense, education, public health, welfare,

consumer goods?consumer goods?

- What consumer goods should - What consumer goods should we produce?we produce?

How should these goods and How should these goods and services be produced?services be produced?

Although there are countless ways to create all the Although there are countless ways to create all the things we want and need, all require land, labor and things we want and need, all require land, labor and capitalcapital

The factors of production can be combined in The factors of production can be combined in different waysdifferent ways

Should we produce electricity with oil, solar power, Should we produce electricity with oil, solar power, nuclear, water or coal?nuclear, water or coal?

Should teachers have 20 or 50 students in a class?Should teachers have 20 or 50 students in a class?

Who consumes these goods and Who consumes these goods and services?services?

How do we distribute abundance?How do we distribute abundance?• Who gets to eat a balanced diet and who doesn’t?Who gets to eat a balanced diet and who doesn’t?• Who get to buy a luxury car and who can’t afford one?Who get to buy a luxury car and who can’t afford one?• Who lives in a mansion and who lives in the projects?Who lives in a mansion and who lives in the projects?• Factor payments- the income people receive for supplying Factor payments- the income people receive for supplying

factors of production- land, labor, capital and factors of production- land, labor, capital and entrepreneurship. entrepreneurship.

1. Examples1. Examples

Who gets what, is the key difference between economic Who gets what, is the key difference between economic systems today. Every society answers this questions systems today. Every society answers this questions

based on their social goals and valuesbased on their social goals and values

The 7 Goals of an EconomyThe 7 Goals of an Economy1. Economic efficiency-1. Economic efficiency- Making the most of your

resources, an economy that can’t deliver goods isn’t efficient.

2. Economic freedom-2. Economic freedom- Freedom from government intervention in the production and distribution of goods and services

3. Economic security and predictability-3. Economic security and predictability- Assurance that goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster

The 7 Goals of an EconomyThe 7 Goals of an Economy4. Safety Net-4. Safety Net- government programs that protect

people during bad economic times.

Examples-

5. Economic equity-5. Economic equity- How much should you get paid for your services or lack of services.

6. Economic growth and innovation-6. Economic growth and innovation- Innovation leads to economic growth, and economic growth leads to a higher standard of living.

7. Value goals-7. Value goals- Societies pursue additional goals, such as environmental protection, universal medical care, etc…

Market Economy (Capitalism)Market Economy (Capitalism) Definition-Definition- economy based on private ownership were economy based on private ownership were

individuals control the production, distribution and sale of individuals control the production, distribution and sale of goods. goods.

Key Person:Key Person: Adam Smith- Adam Smith- “Wealth of Nations”“Wealth of Nations”

Why do markets exist?Why do markets exist?1. Markets exist because none of us produces 1. Markets exist because none of us produces all the goods and services we require to satisfy all the goods and services we require to satisfy our our

needs and wants.needs and wants.

How is money and goods exchanged in a Free Market?How is money and goods exchanged in a Free Market?1. In a free market economy, households and 1. In a free market economy, households and

business firms use markets to exchange money business firms use markets to exchange money and and products. Households own the factors of products. Households own the factors of production and production and consume goods and services.consume goods and services.

Economic Goals of a SocietyEconomic Goals of a Society• Economic System-Economic System- the method used by a society to

produce and distribute goods and services.

• Three Economics SystemsThree Economics Systems

1. Capitalism

2. Command

3. Mixed Economy

The Forces in a Free MarketThe Forces in a Free Market Self-interest-Self-interest- In every transaction, the buyer and In every transaction, the buyer and

seller consider only their own personal gain. Self-seller consider only their own personal gain. Self-interest is the motivating force in the free market.interest is the motivating force in the free market.

CompetitionCompetition- - Producers in a free market struggle for Producers in a free market struggle for the dollars of consumers this is the regulating force of the dollars of consumers this is the regulating force of the free market.the free market.

““Invisible hand”-Invisible hand”- The interaction of buyers and The interaction of buyers and sellers, motivated by self-interest and regulated by sellers, motivated by self-interest and regulated by competition, all happens without a central plan.competition, all happens without a central plan.

The Principles of Free EnterpriseThe Principles of Free Enterprise

1. Profit Motive • The drive for the

improvement of material well-being.

2. Open opportunity • The ability for anyone to

compete in the marketplace.

3. Legal equality • Equal rights to all.

4. Private property rights• The right to control your

possessions as you wish.

5. Free contract • The right to decide what

agreements in which you want to take part.

6. Voluntary exchange • The right to decide what

and when you want to buy and sell a product.

7. Competition • The rivalry among sellers

to attract consumers.

Market Economy- StrengthsMarket Economy- Strengths Economic Efficiency-Economic Efficiency- as a self regulating system as a self regulating system

Capitalism is very efficientCapitalism is very efficient

Economic Growth-Economic Growth- Free market encourages Free market encourages innovation which leads to growthinnovation which leads to growth

Economic Freedom-Economic Freedom- offers the most economic offers the most economic freedom freedom

Additional Goals-Additional Goals- offers the largest variety of goods offers the largest variety of goods and servicesand services

Market Economy- WeaknessesMarket Economy- Weaknesses ““Freedom” to starve, wealth is unevenly distributedFreedom” to starve, wealth is unevenly distributed

NO equity or fairnessNO equity or fairness

NO motive to help the poorNO motive to help the poor

Greed for profit can result in dangerous goods being Greed for profit can result in dangerous goods being providedprovided

Poor Product safetyPoor Product safety

Command EconomyCommand Economy Definition- Definition- the government owns both land and capital. the government owns both land and capital.

The government decides what to produce, how much to The government decides what to produce, how much to produce, and how much to charge.produce, and how much to charge.

Key Person-Key Person- Karl Marx: Karl Marx: “Communist Manifesto”“Communist Manifesto”

Two types of Command Economies-Two types of Command Economies-

1. 1. Socialism- is a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society. (Welfare Card)(Welfare Card)

2. 2. Communism- is a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the government. (Hammer and Sickle)

Centrally Planned SystemCentrally Planned System Agriculture-Agriculture- the government created large the government created large

state-owned farms and collectives for most of state-owned farms and collectives for most of the country’s agricultural production.the country’s agricultural production.

Industry-Industry- planners favored heavy-industry planners favored heavy-industry production (such as steel and machinery), production (such as steel and machinery), over the production of consumer goods. over the production of consumer goods.

Consumers-Consumers- Consumer goods are scarce and Consumer goods are scarce and usually of poor qualityusually of poor quality

Centrally PlannedCentrally Planned Strength-Strength- Everyone knows what the plan is Everyone knows what the plan is

and is focused on completing that plan.and is focused on completing that plan.

Weaknesses-Weaknesses- 1. Unable to pull this off in a modern country 1. Unable to pull this off in a modern country

(countries are too big).(countries are too big).

2. Inefficient and leads to shortages of needed 2. Inefficient and leads to shortages of needed items- but a surplus of non-essential items. items- but a surplus of non-essential items. (Underutilization)(Underutilization)

3. Responds slowly to change3. Responds slowly to change

4. No worker incentives4. No worker incentives

Mixed EconomiesMixed Economies Definition-Definition- an economy that is a mixture of an economy that is a mixture of

both command and market economies. There both command and market economies. There are no pure forms of either, most countries are no pure forms of either, most countries have some government intervention.have some government intervention.

Give Three Examples of Positive Government Give Three Examples of Positive Government InterventionIntervention

1.1.

2.2.

3.3.