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Ch. 2: Economic Systems

Ch. 2: Economic Systems. S1: Answering the 3 Economic Questions S2: The Free Market S3: Centrally Planned Economies S4: Mixed Economies. Bell Work. Get books/folders ready Copy Chart on page 23 somewhere in notes Fill this in as we go along in notes

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Ch. 2: Economic Systems

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  1. Ch. 2: Economic Systems S1: Answering the 3 Economic Questions S2: The Free Market S3: Centrally Planned Economies S4: Mixed Economies

  2. Bell Work • Get books/folders ready • Copy Chart on page 23 somewhere in notes • Fill this in as we go along in notes • Will help give you an overview of section • Answer Chapter 2 Warm-up • Pg. 12 A-D

  3. 2.1: Answering 3 Economic Questions • Chapter 2 Essential Question • “How does a society decide who gets what Goods/Services” • Section 1 Guiding Question • “What Goals/Values affect how a society answers the key economic questions?” • S.1 Objectives: • 3 Economics questions • Societal values that determine how they are answered • Characteristics of Traditional Economy • Key Terms • http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s1.swf

  4. Introduction • Goals/values that affect how a society answers key ?s • Each society is guided by its economic system • Affects the way it does business w/in society and w/other societies • A societies values, such as freedom or tradition, guide the type of economic system they will have

  5. 3 economic questions • B/C of scarce resources a society must answer 3 ?s • What goods/services should be produced? • How should these goods/services be produced? • Who consumes these goods/services? • How ?s are answered defines type of economic system society has

  6. Question 1 & 2 • What goods/services should be produced? • Society must decide what to produce in order to satisfy wants/needs of its people • Because of scarcity (limited resources), each decision comes at an opportunity cost • How should goods/services be produced? • As a society decides, it considers…… • How to best use its 3 factors of production • Land • Labor • Capital : human/physical • Look at Figure 2.1 on pg. 24 (read/answer TPS) • What does each choice involve? • Trade-offs

  7. Question 3 • Who consumes goods/services? • Mostly determined by how a society distributes income • Through factor payments, including profits, society can determine who will be consumers of goods/services • How much will owners make, teachers, bankers, etc. • Answer can tell a great deal about societies values

  8. Economic Goals • Efficiency • Freedom • Security • Equity • Growth

  9. Economic Efficiency • Societies answer 3 ?s based on importance they attach to their economic goals • Scarce resources make societies try to maximize what they can produce using their resources • If they can accurately assess what to produce they can increase their efficiency

  10. Economic freedom and security • Some societies limit the economic freedoms of its people • U.S., we face some limitations, but in general, we have a lot of freedom • Economic systems also strive to achieve a degree of economic security • Basically, systems are there to reassure people that goods/services will be available and they will get paid for work as well

  11. Economic Equity and Growth • Another goal that is defined differently in different societies. Basically how they will divide their “pie” • Checkpoint: “What are 2 examples of economic goals?” • Growth: Economies need to grow • Need to provide jobs for new people in workforce • Strive to improve standards of living • Innovation plays a large role in economic growth and success

  12. Finish 1.1 • BW • Complete pg. 13 • Exploration; Both A and B

  13. Economic goals in conflict • There are some additional economic goals for certain societies • Environmental protections • Full employment • Protecting national industries • Societies end up having to prioritize their economic goals (arrange them in order of importance) • Each choice comes with some kind of trade-off

  14. Traditional Economies • Oldest and simplest economic system • Rely on habit, custom, or ritual • Revolve around family • Little room for innovation/change • Found in communities that… • Stay small and close • Work to support entire community over selves • Success is judged by how they meet their own needs • Often lack modern conveniences • Lower standards of living

  15. Lesson Closing • HW and some of BW tomorrow • Page 55 • Evaluating U.S. Economy • Read Section 2 • Complete ALL of SECT 1 GUIDED READING/REVIEW • Get started on Sect. 2 GUIDED READING/REVIEW • Fill in S1 Chart on top of notes.

  16. Chapter 2 Bell-Work Get Books/Folders Finish up pg. 55 Copy chart for S2 to top of notes or sheet Fill in Chart from section 1 that you copied Go over answers

  17. Chapter 2 : Section 2 • “What are the characteristics of a free-market economy?” write on top of notes • Objectives • Explain why markets exist • Analyze a circular flow model of a free-market economy • Describe self-regulating nature of marketplace • Identify advantages of free-market economy • Key Terms • http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s2.swf

  18. Introduction • What are the characteristics of Free-market economy? • Characterized by….. • Households and firms • Factor and product markets • Self-interest • Competition • Economic freedom, efficiency, and equity

  19. Why do markets exist? • Markets exist to eliminate the need for any one person to be self-sufficient • Examples: NYSE, Farmers markets, Scheel’s, Wal-Mart • They allow us to exchange the things we have for things we want • Money for goods/services in most cases • Lead to specialization • Rather than self-sufficiency, we specialize in a few products/services • Leads to efficient use of 3 factors of production • Allows businesses to focus on limited number of related products/services • Markets are needs as an arena to buy/sell products

  20. Free market economy • 3 ?s answered by voluntary exchanges in Marketplace • Individuals choose • What gets made • How it is made • How much people can consume of good/service • Individuals/Private businesses own factors of production • Look at figure 2.2 pg. 31 • Need to understand what each sector provides one another • Answer two questions…. TPS

  21. Factor and Product markets • Factor Market • Firms purchase factors of production • Renting/buying land, hiring/paying workers, borrowing $$ • Product Market • Arena where households buy good/services a firm produces • Checkpoint: • What is the role of firms in the free-market economy? • Firms buy factors of production from households, then uses them to produce goods/services

  22. Self Regulation • Wealth of Nations • Adam Smith observed countless transactions in marketplace that showed…. • Buyers/Sellers only consider their self-interests • Smith’s take • Positive incentives of lower prices causes more buying • B/C opportunity cost of the purchase is lowered • Regulations • Self-interest is the motivating force in the free-market • Consumers pursue their self-interest by looking for lower/lowest prices

  23. Self-Regulation • Competition • Firms seek to make higher profits by increasing sales • Competition among firms makes increasing sales not always possible • Self-interest and competition work together to regulate the marketplace • Smith called this the “Invisible Hand”

  24. Advantages of Free Market • “Perfect Conditions” lead to meeting these goals • Read aloud…. Pg.34 • Efficiency • Rapid response to changing conditions • Freedom • Large degree of economic freedom • Growth • Encouragement of economic growth • Lend themselves to consumer sovereignty • Consumers have power to decide what gets produc

  25. Answer the Question to caption on pg. 32

  26. Lesson Closing • Workbook • Pg. 14 • Pg. 63 • Quick Video over Market Vs. Command System: DONE • HW • Read Section 3 • Finish up pg. 63 Activity

  27. Chapter 2 Section 3 Get books/folders Finish up Pg. 63 from workbook Copy down chart from section 3

  28. Chapter 2 Section 3 • “What are characteristics of centrally planned economy?” write in notes • Learning objectives • How centrally planned economy is organized • Distinguish between socialism and communism • Analyze the use of central planning in Soviet Union and China • Identify disadvantages of centrally planned economy • Key Terms • http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s3.swf

  29. Introduction • What are characteristics of a centrally planned economy? • The Government answers the 3 economic questions • Govt. owns factors of production • Opposition to private property, free-market pricing, competition, and consumer choice

  30. How Central (command) Works • Govt., rather than indiv’s answers key economic ?s • Govt. owns both land and capital • Govt. controls where people work and their pay • Operate in contrast of free-market • Oppose major concepts of Free-market • Private Property • Free-pricing • Competition • Consumer choice

  31. Socialism vs. communism

  32. Two communist economies • Soviet Union • 1st communists state in 1917; lasted till 1991 • Wanted to build power/prestige • Dedicated best LLC to heavy industry • Greatly effected factories of consumer goods • Led to recurring shortages for lots of goods • China (1949-70s) • Govt. controlled all aspects of Chinese economy • Took over farming too, forced people into farming communities • Led to shortages form decreased farm production • Eased control in 70s of most aspects • More economic freedom has allowed China to grow

  33. Disadvantages of Planned • Often have trouble meeting the basic economic goals • Decreases efficiency, poorly adjustable to market changes • Minimal economic freedom • Innovation/creativity not rewarded, limits growth • No equity • Can help jump-start a small economy or sector of. • Guarantees jobs/incomes to people

  34. Lesson closing • Read Socialism in classroom • What do you think would happen in this classroom • In other classroom that may be different than this room • TPS on some good/bad things that a planned/control economy may offer • Complete • Workbooks • Pg. 71: comparing soc/comm. • Pg. 15

  35. Chapter 2 Section 4 BW Grab books/folders Finish any of pg. 71 in workbooks Copy chart on pg. 39

  36. Chapter 2 Section 4 • “What are the characteristics of a mixed economy?” Write at top of notes • Learning objectives • Explain rise of mixed economies • Interpret circular flow model of mixed economy • Compare mixed to other types • Describe role of free enterprise in U.S. economy • Key Terms • http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s4.swf

  37. Introduction • What are the characteristics of a mixed economy? • Market based economy w/ some govt. intervention • Govt. helps societies meet needs too difficult to meet in Free-market • Example: Education • Govt. protects property rights and ensures that exchanges in marketplace are fait

  38. Rise of the Free-Market • Even “pure” “free-marketers” understand the need for some govt. involvement • Mixed economy has a free-market, but also a certain degree of govt. control • Why govt.? • Need to provide all members of a society some basic needs • Nat’l Defense, public education • Protect private property • Ensure fairness of exchanges in marketplace

  39. Government in the Market • Govt’s buy labor in the factor market to have employees help run its programs • Governments purchase goods/services from firms in product market • Governments also collect taxes from both households and firms • Look at figure 2.4 on pg. 40 • Answer questions……….. TPS

  40. Mixed economies w/high Govt. Intervention: pg. 41 • North Korea; represents one extreme • Economy is almost totally dominated by Govt. • Govt. owns all the property and output equipment • China • Closer to middle b/c they are going through an economic transition toward privatization

  41. Mixed Economies w/little govt. intervention & U.S. • Hong Kong • Represents one of world’s free-est markets • Private sector is “king” • Little govt. interference • Est. wage/price controls on rent and public services • U.S. • Mixed economy w/Free-market foundation • Characterized as a free-market system • Look @/answer caption on page 43

  42. US Economy • Govt. intervenes in economy by……… • Keeping order • Providing vital services • Promoting general welfare • Federal/state laws help protect private property • Marketplace (place to exchange goods/services) operates with limited degree of govt. regulation • Economic Freedom • Very high level of freedom • Foreign investment/free trade encouraged • Banking industry operates under few restrictions • Foreign banks have fewer restrictions

  43. Lesson Closing • Case Study: Look at Wall Street Video Edition • Look at Essential Questions Video • Complete the following • Workbook pgs. 16-19 • Pg. 77 (FDA) • When done, finish up any of other workbook assigned pages • Grab Ch. 2 Study Guide

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