For ALL Economies Each address the three key economic questions What goods and services should be produced? (Allocation) How should these good and services be produced? (Production) Who consumes these goods and services? (Distribution)

Traditional Economy Features: An economy that relies on habit, custom, or ritual to decide the three economic questions. Features: Little room for innovation or change Revolves around the family Work divided along gender lines Small and close communities Remain stagnant, resisting change (both on Individual and Community Level) Slow to adopt new technology or radical new ideas Low standard of living

Market Economy Features: Decisions are made by individuals and are based on exchange, or trade. Features: Individuals answers the three economic questions Also called: Free Market Capitalism

Command Economy Features: Allows for better mobilization of resources Central Government in control and making all of the decisions for the economy Features: Allows for better mobilization of resources However, it restricts freedom and offers no competition. Also Called: Centrally Planned Economy

Mixed Economy Market-based but the government plays a limited role Features: Exist because no one is self-sufficient Markets allow us to exchange the things we have for the things we want Establishes goods and services that markets cannot so efficiently or fairly Balance between control and freedom

Stossel Economic Systems https://www.youtube.com/watch?v=PZpDjxIPpFc

Explain what this quote means “Taxes are what we pay for civilized society” Oliver Wendell Holmes Jr., 1904 Taxes are a necessary part of life in the United States. Although taxation has often received a less than favorable review by taxpayers, the benefits of taxation are positive. What do you think is meant by this quote? Do you agree with it? (Answers will vary.)

Ch. 3 American Free Enterprise How do the public & private sectors interact to maintain a stable, efficient, and growing economy?

You will learn… the foundational principles of American free enterprise, The government’s role in our mixed economy

What is the American Free Enterprise? Any free market Economy relies on self-interest and individuals. Specifically, Free Enterprise refers to a set of legal rules regarding commercial interaction.

Economic Goals: 3 MAIN U.S. GOALS: Economic Growth Full Employment Price Stability

Secondary Goals: Economic Efficiency Economic Freedom Equitable Income Distribution Economic Security Balance of Trade

Terms You Should Know… Public Sector: The part of the economy that involves the transactions of the government Private Sector: The part of the economy that involves the transactions of individuals and businesses

Economic Freedom Individuals work wherever they choose Businesses hire whomever they choose Minimal govt. intervention

Government’s Role… Meet 3 primary economic goals Regulate the economy Provide public goods Solve market failures Provide “safety nets”

What is American Free Enterprise? Profit Motive—force to improve material well-being Competition—rivalry to attract customers & lower costs Private Property Rights—you own your possessions Voluntary Exchange—you may decide what & when to buy & sell Open Opportunity—everyone can compete Free Contract—you decide what agreements to enter into Legal Equality—everyone has the same legal rights Public Disclosure Laws—companies provide full information

Competition: Think of one way that each fast food provider has tried to beat the competition? Producers have an incentive to ‘beat the competition’ Consumers benefit as a result

Private Property Individuals & businesses can buy & sell property & limit its use. What is significant about this picture        What does it tell you about private property?

Contracts Individuals & Businesses form written agreements that are legally binding. You decide what agreements to enter into based on your needs & wants/ perceived benefits

Self-Interest Consumers & businesses operate to their own benefit. Their decisions don’t have to please the govt, other consumers, or other producers.

Voluntary Exchange Both consumers & producers gain from voluntary exchange of goods/services.

Profit Motive Profit is a powerful incentive that leads entrepreneurs to accept the risk of failure.

Solving Market Failures Definition: when the “free market” does not provide a g/s that consumers need at a price they can afford. Essentially, when the market does not distribute resources efficiently. Highways Rural electrification Others?

Providing Public Goods Anything that is shared by us all Why? Because we won’t or can’t pay for it individually and it would be difficult or impossible to exclude nonpayers. Brainstorm examples… Comes down to cost/benefit analysis

Public Goods Example

The "free-rider" problem Why don’t towns charge admission for 4th of July fireworks displays?

Key Terms Public goods eliminate “free-riders,” or people who do not pay for a g/s, but would receive benefits anyway Fireworks common example b/c are both non-rival & non-excludable. Makes it easy for individuals to free ride, utilizing public good without contributing to its production. Non-Rival good –consumption by one consumer doesn’t prevent simultaneous consumption by other consumers Non-excludable -can’t prevent others from obtaining it

MR. CLIFFORD EXPLAINS: https://www.youtube.com/watch?v=nsWuzS_dEM8

Broken Windows Theory "One unrepaired broken window is a signal that no one cares, and so breaking more windows costs nothing."

Broken Window Theory Broken windows policing assumes that serious crime can be reduced by strongly enforcing minor crimes. The "broken window" theory suggests that neighborhood order strategies such as those listed below help to deter and reduce crime. Quick replacement of broken windows Prompt removal of abandoned vehicles Fast clean up of illegally dumped items, litter and spilled garbage Quick paint out of graffiti Finding (or building) better places for teens to gather than street corners Fresh paint on buildings Clean sidewalks and street gutters

Poverty Terms Poverty Threshold: income level below which income (Dollar amount) is insufficient to support a family or household. Vary according to size of family and ages of members in household. Updated annual for inflation using the Consumer Price Index (CPI) Focus on the dollar amount families need to live. The Poverty Rate The poverty rate is the percentage of people in a particular group who live in households below the official poverty line.

How much $ do people make?