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Answering Important Questions. Ch 2.1, p.23. Words. Economic system Factor payment Profit Safety net Standard of living Innovation Traditional economy. In the beginning…. Questions to ask for new biz: What goods and services should be produced? How to do it? Who consumes them?
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Answering Important Questions Ch 2.1, p.23
Words • Economic system • Factor payment • Profit • Safety net • Standard of living • Innovation • Traditional economy
In the beginning… • Questions to ask for new biz: • What goods and services should be produced? • How to do it? • Who consumes them? • Answered by economic system: the structure of methods and principles that a society uses to produce and distribute S & G
Who consumes • Determined by: • Factor payments: the income ppl receive in return for supplying factors of production (land, labor, capital, etc.) • Sort of like Revenue • Profit: amount of money, in excess of expenses!
USA Societal Values • Efficiency • Freedom • Security • Equity!?!?!
Societal Values, Con’t.d • Growth • Standard of living: lvl of prosperity • Innovation: New ideas into use • BEWARE: sometimes these goals conflict
Random BS • Traditional Economy • The book assumes that we live in one – although that’s impossible • “an economic system that relies on habit, custom or ritual to decide the three key economic questions.”
Q & A • Why does the gov’t. provide a safety net for its people? • What must happen for a nation’s standard of living to improve? • Why aren’t workers paid the same amount in factor payments for the resources they provide?
The Free Market Ch 2.2, p.29
Dictionary • Market • Specialization • Free market economy • Household • Firm • Factor vs. product market • Self-interest • Incentive • Competition • Invisible hand • Consumer sovereignty
Why have markets? • So buyers and sellers can exchange things • Duh. And yes.
Free Market Ideas • If everyone is specialized, then the Free Market can do it’s thing. • We want to measure people in households as a team, b/c they aren’t just self-interested and they also pool resources • Firms, on the other hand, are businesses. They perform differently.
Factor vs. Product Markets • FM: the arena of exchange in which firms purchase factors of production from households • PM: homes buy S&G from firms
Self-Regulating • People who are either lazy, selfish or simplistic often refer to the economy as self-regulating • That is absurd • Self-interest, competition and some mythical “invisible hand” (coined by Adam Smith) do NOT form the whole of our economy.
Pros/Cons • Free Market • Controlled Market
So many questions • How does specialization makes us more efficient? • What is the difference btwn a household and a firm?
Centrally Planned Economies Ch 2.3, p.35
Vocab • Centrally planned economy • Command economy • Socialism • Communism • Authoritarian
The Big Idea • Central Economy: an economic system in which the gov’t. makes all decisions on the three questions • Command Economy: another name for same as above
Econ • Attn: Grease!!! • PRESENTATIONS MONDAY • SNL clip • Notes • Vocab Showdown • Propaganda Vid: Communism
Socialism vs. Communism • Socialism is NOT a complete economic system, but rather a PHILOSOPHY. • People should share wealth • Communism is a political system. Gov’t. owns everything and makes all decisions • They are often authoritarian, requiring strict obedience – to a powerful central gov’t.
Two Commies • USSR vs. China • How were/are they different? • China is a bit more ‘free market’ oriented
Questions • What does a centrally planned econ stifle that a free market encourages? • What’s the difference btwn socialism and communism?
Plan • Attn: ORAL PRESENTATIONS MONDAY • Cows!! • Finish Game • Quiz • Notes • Madoff or Shark Tank Clip?
Mixed Economies Ch 2.4, p. 39
Key Terms • Laissez faire • Private property • Mixed economy • Economic transition • Privatization • Free enterprise
Rise of Mixed Econs • Laissez faire hasn’t really worked for us. • So we’ve started to mix things up • Gov’t owns some things and private individuals own others • Private vs. Public property
The Transition • Transitioning to a mixed economy usually involves one of two movements: • Privatization • Gov’t acquisition