Economic Systems and the American System

Section 1

On a sheet of paper, write down the following: 1. Make a list of your daily activities from the moment you wake up til the time you go to bed at night 2. If there are different things you do on the weekend (i.e., job), add that to your list 3. Now add any goods or services you’ve bought recently (hair cut, dr’s appt, new CD, etc) 4. Last, place a star next to any items on your list that you believe are affected by the government 5. Answers could include: public schools, buses, sales tax, income tax, drivers licenses, minimum wage laws, roads/bridges,

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

What should be produced? How should it be produced? For whom should it be produced?

Combines the characteristics of more than one type of economy Individuals own the factors of production and make econ. decisions through free interactions Government controls the factors of production & makes decisions about their use System in which economic decisions are based on customs and beliefs that have been handed down from generation to generation Traditional economy Command economy Mixed economy Market economy

You know what is expected of you – you will produce what your parents produced Strong family and community ties Advantage Change in economy is discouraged and sometimes punished Rarely have an increase in material well-being Few choices for goods & services Disadvantage Tribes in Africa Inuit of N. America Democratic Republic of Congo Aborigines of Australia Examples The “way it’s always been done” Career is what your parents did (ie. Fisherman) Turn to page 36 in book

 Why do you think leaders in Traditional economies discourage or even punish change?  Fear of outside influence  Lack of understanding of alternative modes of production  Determination to preserve culture  Power structure tied to tradition and custom

Individuals paid according to what central planners decide. Might not be able to choose own career. Lack of incentive to work hard Lack of consumer choices Disadvantages North Korea Parts of the People’s Republic of China Examples Turn to page 37 in book

2 types of Command Economies 1) Strong command (communism) 2) Moderate command (socialism)  Strong command  State makes all economic decisions and controls all resources for the common good  Countries: China, Cuba, Many Latin American countries  Moderate command  The state owns major resources, while some businesses are privately owned  Countries: France, Sweden

 Market - a voluntary exchange of goods and services between buyers and sellers  Economic decisions are made in the marketplace according to the laws of supply and demand. Individual choices (careers, how to spend money, own property, option to take risks and earn profits) Competition provides choices and better products Choices, choices, choices Advantages Old, young, and sick that can’t work – who provides for them? Disadvantages Examples: United Kingdom, India, Sweden

Most countries have a mixed economy – including the United States Your own money situations – spending, investing, etc. Individual Level: Make laws protecting private property & regulating parts of business Environmental protections, Safety guidelines, and consumer protection Local, State & Federal Government

 Go over handout from yesterday  TED video – “sixth sense” technology a.k.a. “brain implant’  Cut/paste activity  Notes over U.S. economy  Tomorrow: Circular Flow model & simulation

US Economy Limited Role of Government Freedom of Enterprise Freedom of Choice Profit Incentive Competition Private Property

 Governmental Role has increased since 1880’s in the U.S.  Often called “Laissez Faire” when pure capitalism exists -- which means “let them do as they choose” in French  Capitalism as practiced in the U.S. today would be best defined as an economic system in which private individuals own the factors of production but use them within certain legislated limits  Includes regulations, laws and taxation  Govt regulates the quality of various food & drugs, watch over nation’s money & banking system, tax revenues, Social Security, etc.

 You are allowed to own your own business  You are able to earn a profit or lose everything  You must still follow government guidelines and regulations Name 5 businesses in Lincoln that are privately owned.  hair salons, computer repair shops, family restaurants, pawn shops

Freedom of Choice  Buyers make the decisions about what should be produced  Government has little say in what is produced Think of something you have purchased that you did not like. Did you ever purchase that item again? Have you ever wanted to purchase something but could no longer find the product?  The buyers determine if a product will remain on the market – if it’s not a quality product, it will fail

Profit Incentive  Profit is what is left when all of the businesses costs have been paid  If profits are not realized the business will fail

Competition  Profits encourage others to be competitive  Competition leads to efficient use of resources Name a product that has a lot of competition. Name a product that has little or no competition. Without competition, consumers have little or no choice in products. What is a monopoly ?

Private Property  Allows individuals to own property  Protected by the Constitution Make a list of 5 items that you own. Which of these items could be used to generate wealth?

Basic economic questions: 3. _________ should be produced? 4. __________ should it be produced? 5. _____________ should it be produced? What are the 4 types of economies?

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

 Utility- power that a good or service has to satisfy a want  Marginal utility - an additional amount of satisfaction  Law of diminishing marginal utility - rule stating that the additional satisfaction a consumer gets from purchasing will lessen with each of additional unit purchased

 Think of a time when you “had too much to eat”. How would that experience be similar to the law of diminishing marginal utility?

 Charts in Motion Charts in Motion 

 Write advantages and disadvantages of a market economic system  Search newspapers & magazines & watch t.v to locate examples of adv. & disadv.  End product: pictorial essay