Every society has an economic system to allocate goods and services .

1. Every society has an economic system to allocate goods and services.

2. Section Preview In this section, you will learn about the different types of economic systems that govern WHAT goods and services to produce, HOW to produce them, and FOR WHOM to produce them. Section 1-Preview

3. Content Vocabulary • economic system • traditional economy • command economy • market economy • market • capitalism • mixed economy • socialism • communism Academic Vocabulary • stagnation • allocate • emphasizing Section 1-Key Terms

4. Economic Systems • All societies use an economic system to provide for needs and wants of their people. • Three major economic systems exist: • Traditional • Command • Market

5. Economic Systems

6. Economic Systems (cont.) • Most economies combine elements of the three. Comparing Economic Systems Section 1

7. Traditional Economies Traditional societies use ritual, habit, or customs to answer the basic questions of WHAT, HOW, and FOR WHOM to produce. Section 1

8. Traditional Economies (cont.) • A traditional economy—use of scarce resources and economic activity is based on habit or custom. Section 1

9. Traditional Economies (cont.) • Advantages • Everyone knows which role to play. • Little uncertainty on what or how to produce. • Some people are more comfortable with traditions as opposed to the “new” • Customs and traditions determine who is provided for. Section 1

10. Traditional Economies (cont.) • Disadvantages • Individuals generally not free to make decisions • New ideas discouraged, leading to stagnation and a lower standard of living • Strict rules defined by elders and ancestors • Often live at subsistence level- on the edge of survival Section 1

11. Command Economies Command economies rely on a central authority (GOVERNMENT) to make most of the economic decisions. Section 1

12. Command Economies (cont.) • A central authority (gov’t) makes the major decisions in a command economy. Section 1

13. Command Economies (cont.) • Advantages • Can change direction drastically through emphasizing/allocation • Health and public services available to everyone at little or no cost • “Make the trains run on time” Section 1

14. Command Economies (cont.) • Disadvantages • Basic wants and needs of consumers are ignored. • Elite may get enough while the common people go without • Economies tend to be unproductive (not producing enough), not producing a good product. • Large decision-making bureaucracy lacks flexibility, and is often corrupt. Section 1

15. Command Economies (cont.) • Severely limits private property rights • Individual freedom and initiative are limited. Section 1

16. Market Economies In a market economy, consumers and businesses jointly answer the questions of WHAT, HOW, and FOR WHOM to produce. Section 1

17. Market Economies (cont.) • A market economyallows people to make decisions in their own best interest. • Buyers and sellers exchange goods and services in a market. • Market economies are based on capitalism. • Capitalism means that the factors of production are privately owned. Section 1

18. Market Economies (cont.) • Advantages • High degree of individual freedom • Adjusts gradually to change over time • Small degree of government interference • Decision making is decentralized • Large variety of goods and services • High degree of consumer satisfaction Section 1

19. Market Economies (cont.) • Disadvantages • Not everyone is provided for • May not provide enough of some basic goods and services • High degree of uncertainty for workers and employers • INEQUALITY, disparity, rich vs. poor • GAP between haves & have-nots widens Section 1

20. Mixed Economies Most economies in the world today feature some mix of traditional, command, and market economies. Section 1

21. Mixed Economies (cont.) • Most economies in the real world are mixed economies. • When political systems are considered with economic systems, the picture gets more complicated. • An example is socialism and its extreme, communism. The Spectrum of Mixed Economies Section 1

22. Mixed Economies (cont.) • The type of political system in a mixed economy is less important than the way basic economic decisions are made. The Spectrum of Mixed Economies Section 1

23. Figure 2

24. Mixed Economies (cont.) • Advantages of a mixed economy • Provides assistance for some people who might otherwise be left out • In a democratic society, voters use electoral power to affect WHAT, HOW, and FOR WHOM decisions. • In a socialist society, FOR WHOM is addressed more directly by government. Section 1

25. Mixed Economies (cont.) • Disadvantages • More services mean higher costs for citizens overall. • In socialist countries, availability of services may be limited or quality deteriorates over time. Section 1

26. Figure 1

27. Corresponds to Ch. 7 Consumerism In this section, you will learn how economic freedom, economic security, and economic equity are related to the level of satisfaction people have with their economic systems. This is often described as ‘QUALITY OF LIFE.’ Section 2-Preview

28. Economic and Social Goals In Canada, we share several economic and social goals. VS 2

29. Content Vocabulary • minimum wage • Social Security • inflation • fixed income • welfare Academic Vocabulary • adverse • accommodate Section 2-Key Terms

30. Economic and Social Goals Canadians (and most democratic nations) share several major economic and social goals. Section 2

31. Economic and Social Goals (cont.) • In most democratic countries, there are seven major economic and social goals: • Economic freedom • Economic equity • Equity is  impartiality or fairness. • The minimum wage was established on a national level. • Many states in the USA passed ‘lemon laws’ to protect against defective products. Section 2

32. Economic and Social Goals (cont.) • Economic security • Social Security was established for disabled or retired beneficiaries. • Full employment Section 2

33. Economic and Social Goals (cont.) • Price stability • Inflationmakes paying bills difficult for individuals on afixed income. • High rates of inflation discourage business activity. • Economic growth Section 2

34. Economic and Social Goals (cont.) • As our society evolves, more goals may become important to us. Section 2

35. Resolving Trade-Offs Among Goals Conflicts among goals can be solved by comparing the cost of a goal to its benefit. Section 2

36. Resolving Trade-Offs Among Goals (cont.) • Individuals have different ideas on how to reach a goal or on the goal itself. • Our economic policies have opportunity costs and trade-offs. Section 2

37. Resolving Trade-Offs Among Goals (cont.) • In many cases, trade-offs among goals are resolved when people compare their estimate of the costs to their estimate of the benefits and then vote for candidates accordingly. • The Canadian economy is flexible enough to allow choices, accommodate compromises, and still satisfy the majority of citizens. Section 2

38. Section Preview In this section, you will learn how under capitalism the basic economic decisions of WHAT, HOW, and FOR WHOM to produce are made through the free interaction of individuals looking out for their own best interests. Section 3-Preview

39. Content Vocabulary • free enterprise • voluntary exchange • private property rights • profit • profit motive • competition • consumer sovereignty • mixed or modified free enterprise economy Academic Vocabulary • incentive • catalyst • regulator Section 3-Key Terms

40. American Free Enterprise • In many parts of the world, capitalism has become the economic choice. • Capitalism allows private citizens to own and use the factors of production to generate profits. • The U.S. economy is based on free enterprise. Characteristics of Free Enterprise Capitalism Section 3

41. American Free Enterprise (cont.) • Capitalism and free enterprise are often used interchangeably, although meanings are different. • Capitalism stands for the private ownership of resources. • Free enterprise is the unhindered use of privately owned resources to earn profits. Characteristics of Free Enterprise Capitalism Section 3

42. Characteristics of Free Enterprise Capitalism The American economy incorporates the main characteristics of a free enterprise economy. Section 3

43. Characteristics of Free Enterprise Capitalism (cont.) • There are five major characteristics of a free enterprise economy: • Economic freedom • Voluntary exchange • Private property rights • Private property gives individuals incentive to work, save, and invest. • Profit motive • People are free to take risks to earn a profit. • Competition Section 3

44. Figure 3

45. The Role of the Entrepreneur Entrepreneurs are the driving force of the free enterprise system. Section 3

46. The Role of the Entrepreneur (cont.) • Entrepreneurs • Organize and manage land, capital, and labor to gain a profit • Are the people who start up new businesses • Want to “be their own boss” • Are willing to take risks Section 3

47. The Role of the Entrepreneur (cont.) • Entrepreneurs are both the spark plug and the catalyst of the free enterprise economy. • Their search for profits leads to a chain of events that brings • New products • Greater competition • More production • Higher quality • Lower prices for consumers Profiles in Economics:Tony Hawk Question #7, p. 53; Tony Hawk, p. 54, #1-2 Section 3

48. The Role of the Consumer The economy in the Canada adapts to consumers’ wants. Of course just WANTING a good or service is not enough. To be a consumer, one must be able to PAY for the good or service. Section 3

49. The Role of the Consumer (cont.) • Consumers ultimately determine which products are produced. • If consumers like a new product, producers are rewarded with profits. • Consumers not purchasing a product can cause a firm to go out of business. Section 3

50. The Role of the Consumer (cont.) • The phrase “the customer is always right” recognizes consumer sovereignty. • Consumers are always looking for new ideas and products. Question #4, p. 53 Section 3