Economic Systems and the American Economy Chapter 2

Section 1: Economic Systems Every society has an economic system to allocate goods and services. The Three Basic Questions What Should Be Produced How Should it Be Produced For Whom Should It Be Produced

Types of Economic Systems Traditional System- Decisions based on customs Command System- government controls the factors of production Market System- individuals own the factors of production and make economic decisions Market- free exchange of goods and services Circular flow of income and output

Types of Economic Systems Mixed Economy- combining characteristics of two or more systems Examples Traditional Command Market Mixed

Section 2 Free Enterprise with some regulations Adam Smith, The Wealth of Nations, Market system based on Capitalism. Capitalist System or Market economy. Initially government was limited to national defense and keeping the peace. The role has grown for government.

Five Characteristics of the American Economy 1. Freedom of enterprise- individuals own and control the factors of production. 2. Freedom of Choice 3. Profit incentive 4. Competition 5. Private Property

Section 3: The goals of the Nation 1. Economic efficiency- Using resources wisely so people will be as well off as possible. 2. Economic Growth- Expand the economy to produce more goods, jobs and wealth. 3. Economic Equity- Balance an economic policy so everyone benefits fairly

Goals of the nation 4. Standard of Living- Material well being of an individual, group, or nation. Rights and Responsibilities Support yourself and family Use education productively Elect responsible Government officials

Section 4: Socialism and Capitalism Pure Socialism- closest N. Korea and Cuba Marxian view of Socialism- Karl Marx Continual struggle between groups or classes in society. Proletariat- workers control Socialism to Communism- No government

Socialism and Capitalism Socialism since Marx Democratic Socialism- elect socialists, control of some parts of economy Authoritarian Socialism- revolution for socialist goals. Government control (Communism) Benefits of Capitalism Higher rate of economic growth