Chapter 2 Economic Systems & the American Economy

1. Chapter 2Economic Systems & theAmerican Economy

2. Economic Systems • Economic system – way in which a nation uses its resources to satisfy its people’s needs and wants

3. 3 Basic ?s of Economic Systems • What should be produced? • If one item is produced, then less of something else must be produced. • How should it be produced? • What labor, capital goods, and factors of production will be used? • For whom should it be produced? • How will goods be distributed? • Price system, majority rule, 1st come-1st served, sharing equally or military force

4. Types of Economic Systems • Traditional System • Command (controlled) System • Market (capitalist) • Mixed System

5. Traditional System • Traditional economy – system in which economic decisions are based on customs and beliefs that have been handed down from generation to generation • Trades and work learned from parents • Know what is expected of you • Change discouraged or punished • Production inefficient and choice of goods is rare • Examples – Eskimos, Aborigines & Amish?

6. Command System • Command economy – system in which the government controls the factors of production and makes all decisions about their use • Government decides what to produce & how it will be distributed • Government guides people into certain jobs • Lack of incentive to work hard, few choices, limited efficiency or inventiveness • North Korea & China (changing)

7. Market System • Market economy – 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 • Limited government, individuals control factors of production and economy driven by market price

8. Market System • Market – freely chosen activity between buyers and sellers of goods and services • Circular flow of economic activity – economic model that pictures income as flowing continuously between businesses and consumers • Advantages – free to choose career and how to spend $, own private property, take risks, & many goods for purchase • Disadvantages – How to provide for elderly, young & sick

9. Mixed System • Mixed economy – system combining characteristics of more than one type of economy • Most countries have a mixed economy • Most individuals make decisions but are regulated to various extents by the government

10. Characteristics of the American Economy • Freedom of choice – can choose to produce or not produce or to buy or not to buy • 6 Characteristics of a pure market system • 1. Little or no government control • 2. Freedom of enterprise • 3. Freedom of choice • 4. Private property • 5. Profit incentive • 6. Competition

11. Characteristics of the American Economy • Limited role of government • Adam Smith – founder of modern economics - Wealth of Nations – people will use resources efficiently to achieve the maximum good for society • Capitalism – economic system in which private individuals own the factors of production & decide how to use them within legislated limits • Laissez-faire – pure capitalism – economic system in which the government minimizes its interference with the economy • Government has increased its role since the 1880s

12. Characteristics of the American Economy • Freedom of enterprise • Free enterprise system – economic system in which individuals own the factors of production and decide how to use them within legal limits; same as capitalism • Regulations – zoning, child labor, pollution & taxes – examples • May make money or may lose money • Freedom of choice • Buyers, not sellers, make decisions about what is to be produced • Government influences the market to protect consumers – safety standards & price controls

13. Characteristics of the American Economy • Profit Incentive • Profit – money left after all the costs of production have been paid – wages, bills & taxes • Profit incentive – desire to make money that motivates people to produce and sell goods and services

14. Characteristics of the American Economy • Private Property • Private property – whatever is owned by individuals rather than by government • Constitution guarantees an owner’s right to private property and its use (eminent domain) • Competition • Competition – rivalry among producers and sellers of similar goods and services to win more business • Leads to lower prices, better quality and an efficient use of resources • Low barriers to entry are needed

15. The Goals of the Nation • Goals of free enterprise in the U.S. • Economic freedom – allows members of society to make choices and possibly fail • Economic efficiency – wise use of available resources so that costs do not exceed benefits • Economic equity – attempt to balance an economic policy so that everyone benefits fairly – (equal pay, hiring practices & disabled)

16. The Goals of the Nation • Economic security – protection against accidents, natural disasters, bank failures etc. • Economic stability – reduce extreme ups & downs in standard of living • Standard of living – the material well-being of an individual, group, or nation measured by how well their necessities and luxuries are satisfied • Economic growth – expansion of the economy to produce more goods, jobs and wealth • Trade-Offs among goals – limits on what you can do with resources due to scarcity (Social Security)

17. The Goals of the Nation • Rights & Responsibilities • Right to enter any profession or business you want • Right to work very little or a lot • Right to buy what you want • Need to support yourself and your family • Need to be a productive member of society • Need to have responsible government

18. Goods & Services at School Post HS Planning Grades/Report Cards Internet usage Vending Machines Health services Yearbooks Church service time Fundraisers Secretarial Services • Education • Parking lot attendant • Custodial • Entertainment • Construction workers • Bathrooms • Lunch • SAP • Guidance

19. Workout Intramurals Library Supplies Infrastructure Social activities SAT Prep Dance Software/Hardware Trainer • Transportation • Extra-curriculars • Role Models • Season Passes • Announcers, scorekeepers etc. • Music lessons • Weightroom • Voice • Discipline

20. Class trip • Recycling • Peer mediation • Locks/Lockers • Field trips • Playground • News • Carnival • Concessions • Special Education • Tutoring • Parking • Pictures • PTO • Community Service • School to Work • Dual Enrollment • TSS