Do Now

1. Do Now • Please give me an example of the following resources: • Human • Natural • Capital • What are some questions a person must ask themselves if they want to open a business?

2. Scarcity Means There Is Not Enough For Everyone Government must step in to help allocate (distribute)resources

3. Economic Systems How the Government Influences How I Make Money

4. Economic Systems • Def: The method used by a society to produce and distribute goods and services • Or, how the government tells us what we can get and how to get it

5. All Economic Systems Must Consider the Following Questions: • What goods and services to produce? • How will they produce them? • Who will get them? • How much will they produce now, and how much later? Each economic system answers these questions in a DIFFERENT WAY

6. Types of Economic Systems • There are 3 basic types of economic systems.

7. 1. Traditional Economy • Economic questions are answered by habits and customs (The way it has always been done) • Children work the same jobs parents worked often farming or hunter/gatherer • Fear Change! • Ex. Eskimos, the Amish, Pigmies, Bush People

8. 2. Command Economy • The government answers the basic economic questions • Advantages: able to act quickly in emergencies, provide for all people equally • Disadvantages: Inefficient, no incentive to work hard or be creative • Ex. Communist Countries (China?, Vietnam, North Korea, former Soviet Union, Cuba)

9. 3. Free Market Economy • Economic questions are answered by individual buyers and sellers. • Laissez Faire = Let it be • Supply and demand influence economy • People act out of self interest; motive for profit (money) drives the economy • Also known as FREE ENTERPRISE or CAPITALISM • Ex. The United States, Western Europe, Japan

10. I lied! • I said there were 3 types of economic systems, but there is a 4th! • Mixed Economy: No economy is pure market, pure command or pure traditional, elements of each appear in all economies, some may have more elements of one economy than another. • Market – USA • Mixed – Great Britain • Command – China

11. Do Now • Using your understanding of economic systems, please answer the following question: • In your opinion, what economic system is the least effective in meeting ALL the needs and wants of its people?

12. American Mixed Economy • While the US is mostly a free market economy, it does have elements of a command economy.

13. Example of Free Market • Example of how the free market regulates itself: • If consumers want computers and only one company is making them… • Other businesses have the INCENTIVE to start making computers to earn PROFIT. • This leads to more COMPETITION…. • Which means lower prices, better quality, and more product variety. • We produce the goods and services that society wants because “resources follow profits”. • The End Result: Most efficient production of the goods that consumers want, produced at the lowest prices and the highest quality.

14. The Invisible Hand • The concept that society’s goals will be met as individuals seek their own self-interest. • Example: Society wants fuel efficient cars… • Profit seeking producers will make more. • Competition between firms results in low prices, high quality, and greater efficiency. • The government doesn’t need to get involved since the needs of society are automatically met. • Competition and self-interest act as an invisible hand that regulates the free market.

15. Attacks Against Capitalism • Companies are greedy and do anything to screw over consumers! • Companies have an incentive to satisfy the needs of consumers. If they don’t they will go out of business. • Capitalism causes companies to outsource US jobs overseas. America suffers because companies want more profit! • How many of you lost your job to outsourcing? • How many of you benefit in the form of lower prices? • Capitalism only helps the rich. US companies enslave and exploit third-world workers in sweatshops! • Sweatshop workers are not forced labor. They make the decision to work there voluntarily. Why? • Although the working conditions are far below US standards, working in a sweatshop is better that the alternative • Sweatshop wages in Vietnam, Honduras, and Nicaragua are more than double the country’s average wage. 15

16. Advantages and Disadvantages What is GOOD about Communism? What is BAD about Communism? • Low unemployment-everyone has a job • Great Job Security-the government doesn’t go out of business • Equal incomes means no extremely poor people • Free Health Care • No incentive to work harder • No incentive to innovate or come up with good ideas • No Competition keeps quality of goods poor. • Corrupt leaders • Few individual freedoms

17. Features of America Free Market Economy • Economic Freedom: Individuals have the right to choose. • Competition: more than one producer of good/services ensures choice. • Private Property: Individuals have the right to own their own property, including business

18. Features cont 4. Self-Interest- individuals make decisions based on what is best for them. 5. Voluntary Exchange: Individuals may freely buy and sell goods 6. Profit Motive: Ind. are driven by a desire to profit(make money)

19. Features of American Command Economy • Government regulation of some business practices. Ex. Wages, labor hours, safety practice. • Government limits certain choices. Ex Cannot buy or produce certain goods/services. • Gov’t provides aid to the needy. Ex Medicare, Medicaid, welfare

20. My Pizzeria • How would my pizzeria function under different economic systems?

21. My Pizzeria in a Free Market • I answer the basic economic questions! • I determine how much cheese and pepperoni goes on the pizza • I determine the quality of cheese and pepperoni • I set my employee wages • I set my business hours

22. My Pizzeria in a Command Economy • The government answers the basic economic questions • The gov’t sets the amount of cheese and pepperoni on each pizza • The gov’t determines the quality of chees and pepperoni • The gov’t sets employees wages • The gov’t sets business hours • Problem: What does the gov’t know about pizza?

23. My Pizzeria in a Mixed Economy • The gov’t and I both answer the basic economic questions • I determine the amount of cheese and pepperoni on the pizza; gov’t determines the quality of cheese and pizza • I set employee wages; gov’t set minimum wage for employees • I determine business hours: gov’t determines whether I am safe to be open or not

24. The difference between North and South Korea at night. North Korea's GDP is $40 Billion South Korea's GDP is $1.3 Trillion (32 times greater).

25. Homework • Please answer the following question in a ONE paragraph response: • In your opinion which economic system is the most beneficial for the lower, middle and upper class? You can have more than one answer