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ECONOMIC PERSPECTIVES - CHAPTER 2

Economic Systems and the American System. ECONOMIC PERSPECTIVES - CHAPTER 2. Section 1. Economic systems. All economic systems face the same basic questions. But first… What is an economic system? The way in which a nation uses its resources to satisfy its people’s needs and wants.

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ECONOMIC PERSPECTIVES - CHAPTER 2

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  1. Economic Systems and the American System ECONOMIC PERSPECTIVES - CHAPTER 2

  2. Section 1 Economic systems

  3. All economic systems face the same basic questions. But first… • What is an economic system? • The way in which a nation uses its resources to satisfy its people’s needs and wants Main idea:

  4. Three basic questions:

  5. The “choice/alternative” you give up when you make a decision is called ________________. The way in which a nation uses its resources to satisfy its people’s needs and wants is ___________. Review of Chapter 1

  6. Types of economic systems

  7. Traditional economy The “way it’s always been done” Career is what your parents did (ie. Fisherman)

  8. Command system Government is in control and makes all economic decisions

  9. Market—more than just a “place” – it’s a voluntary exchange of goods and services between buyers and sellers market system (aka capitalism)

  10. Mixed economy

  11. Exchange of goods or services without the use of money • Thousands of years and is still happening • Silent Trade • One group of traders deposits goods in a pre-arranged spot. • Second group either accepts goods and leaves some in return or rejects offering – first group then makes changes to offering and second group accepts or rejects • No contact is made between the two groups Bartering

  12. Circular flow model Businesses Sell goods and services to individuals Individuals pay for goods and services they buy from business Businesses Pay Taxes Individuals Pay Taxes Gov’t benefits to individuals Gov’t benefits to businesses Businesses pay for resources they buy from individuals Individuals sell resources to businesses

  13. Charts in Motion http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/ett/Figure2-2.swf Circular flow of income and output

  14. Section 2 Capitalism in the United States is best defined as an economic system in which private individuals own the factors of production but use them within certain legislated limits.

  15. Main Idea – under Capitalism, government plays a relatively limited role in the allocation of resources Since the 1880’s, the role of government (federal, state, and local) has increased significantly. Section 2 – Characteristics of an American Economy

  16. Capitalism – economic system in which private individuals own the factors of production • Laissez-faire – economic system in which the government minimizes the interference with the economy • a French term meaning “let (people) do (as they choose).” • Limited Government includes – regulation, safety, money supply, and taxes.

  17. Individuals left to their own would be guided as if by an “invisible hand” to use resources efficiently and thus achieve the maximum good for society. Adam Smith – An Inquiry into the Nature and Causes of the Wealth of Nations.

  18. Section 2 Other Characteristics In a free market, economic activity is coordinated by private businesses and individuals responding to market signals.

  19. Section 2 Other Characteristics (cont.) The American economy is known as a free enterprise system. Individuals are free to own the factors of production and decide how to use them within legal limits; same as capitalism.

  20. Section 2 Other Characteristics (cont.) Americans also have freedom of choicewherebuyers, not sellers, make the decisions about what should be produced. • At times, the government has intervened in various areas of the economy to protect buyers and regulate price. • The goal of a business is to make a profit. • amount earned after a business subtracts its costs from its revenues

  21. Section 2 Other Characteristics (cont.) The desire to make a profit is referred to as profit incentive or profit motive. The risk of failing, when profits are not realized, is also part of the free-enterprise system. In a free-enterprise system, the lure of profits encourages competition. For competition to exist, industry barriers to enter into, and exit from must be weak.

  22. Section 2 Other Characteristics (cont.) Competition leads to an efficient use of resources since businesses are forced to keep costs of production as low as possible. • One of the most important characteristics of capitalism is the existence of private property. • whatever is owned by individuals rather than by government View:Characteristics of the American Economy

  23. Utility – the ability of any good or service to satisfy consumer wants Marginal utility – an additional amount of satisfaction to be gained by one more Chapter 7 – Marginal Utility

  24. Rule stating that the additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased Law of diminishing utility

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