Free enterprise & other economic systems Topic 2 Free enterprise & other economic systems

3 basic economic questions How do societies meet people’s wants & needs? (Resources are scare everywhere)

3 basic economic questions What goods & services should be produced? 2. How should goods & services be produced? 3. Who consumes the goods & services that are produced?

3 basic economic questions What goods & services should be produced? 2. How should goods & services be produced? 3. Who consumes the goods & services that are produced?

sahara 1

2

3 Zimbabwe

4 Ecuador community garden

3 basic economic questions What to produce: Defense? Education? Consumer goods? How: Public or private schools? Oil or solar power? Who consumes: Who goes to college? Who gets to buy food? Who depends on how society distributes income. How much to doctors make? Teachers? Mail carriers?

How?

Economic Goals of a society Efficiency Freedom Security Equity Growth In your notes, describe what you think each of these means

Economic Goals of society Efficiency: Resources are scarce so societies try to maximize what they can produce Freedom: People value the opportunity to make their own choices Security: People don’t like uncertainty, so societies try to reassure people that g&s will be available when needed Safety nets Equity: Fairness (Should every one get the same? Should consumption depend on production? Provide for those who are unwilling to produce?) Growth: A nation’s economy must grow with its population Improve standard of living

There are 4 different Economic Systems The structure of methods & principles a society uses to produce & distribute goods & services. There are 4 different Economic Systems Depending on how a society answers the 3 basic questions (depending on how much they value the 5 different economic goals)

Read the article on the Types of Economic Systems Read the article on the Types of Economic Systems. Write down 5 things you learned from the article. 5 full sentences

Markets Market: Any arrangement that allows buyers & sellers to exchange things Participants in a free market: Households & Firms Consumers of g&s Produce g&s

Circular flow model Products Resources

Adam smith Scottish social philosopher 1776 published The Wealth of Nations Competition & self-interest drive free markets

incentives Hope of reward or fear of penalty Encourages a person to behave in a certain way

The invisible hand People act in self-interest Consumers buy what they want, Producers make what will make $ Competition causes firms to produce more & regulates price Market place operates efficiently with no central planning

Command economies Operate in direct contrast to free market enterprises. Socialism: a range of economic & political systems based on the belief that wealth should be evenly distributed throughout society Communism: Central government owns & controls all resources & makes all economic decisions

Karl marx German philosopher Unlike Adam Smith, stressed the tensions between labor & capital Labor was source of value, but under capitalism, factory owners earned the profit Capitalism was exploitation of workers

Mixed economies Every system is flawed Market system with some government involvement Every system is flawed Traditional: little potential for growth of change Command: Stifle innovation, don’t meet consumers needs, limit freedom Free Market: People don’t always get things right Laissez-faire: Government generally should not intervene in the market place

Reasons for mixed economy Governments may limit child labor to protect children’s health and safety.

Circular flow model of a mixed economy

Singapore is one of the world’s freest markets today

United states Foundation of our economy is a free market United States Free Enterprise System US government provides vital services, promotes general welfare, & keeps order. Too much or too little government involvement?

While almost all countries have mixed economic systems, some lean farther toward planned economies and others lean more toward free markets. Analyze Information How would you describe the location of the United States on this continuum?

Topic 2.5 Benefits of free enterprise Opportunity Incentives Competition Private property rights Pg. 44

2.6 Economic growth Tracking the Economy Yesterday you bought a pack of gum . . . or a new bike . . . or your first car. Your purchase was just one of millions of exchanges that took place across the country that day. Government economists track these patterns of buying and selling in order to assess the state of the American economy.

Macroeconomics: study of economic behavior & decision-making in a nation’s whole economy Microeconomics: study of economic behavior & decision-making in small units (ex. Households & firms)

gdp Expansion, country produces more than it did before, GDP increases Contraction, country produces less, GDP goes down Gross domestic product Total value of g&s purchased in a country in a given year Expansion & contraction is called business cycle

2.7 public goods Public goods: shared good or service for which it would be inefficient or impractical to make consumers pay individually, & to exclude those who did not pay

Free rider problem: someone who would not be willing to pay for a certain g or s, but would get the benefit anyway

externalities An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume. or

Positive or negative?

Positive or negative?

Positive or negative?

Positive or negative?

4-person family (2 kids) = $23,283 The poverty problem 15% of Americans live in poverty Poverty threshold: an income level below that which is needed to support families 2012 poverty threshold: 4-person family (2 kids) = $23,283

4-person family (2 kids) = $23,283 The poverty problem 15% of Americans live in poverty Poverty threshold: an income level below that which is needed to support families 2012 poverty threshold: 4-person family (2 kids) = $23,283

2005 World Poverty Threshold: $1.24/day Percentage of people living below world poverty threshold

2005 World Poverty Threshold: $1.24/day Percentage of people living below world poverty threshold

Do people become dependent? Government’s role Society recognized role to care for very young, very old, sick, poor, & disabled. Welfare system: Welfare: government aid for the poor Redistribute wealth Started under FDR, the Great Depression Do people become dependent?