ECONOMIC SYSTEMS AND HISTORICAL FIGURES Chapter 2

OBJECTIVES Identify the three key economic questions that all societies must answer Examine the different types of economic systems Analyze the free enterprise system Explore historical figures in economics and their contributions to world economies Economics-Biba S. Kavass

3 Basic Economic Questions

WHAT? HOW? FOR WHOM?

Economics-Biba S. Kavass

EXAMPLES OF ECONOMIC SYSTEMS Traditional Aborigines - Australia Tribes - Africa Tribes – South America Command China Cuba Laos North Korea Market/Mixed United States Europe Canada Economics-Biba S. Kavass

Economic Goals and Societal Values Importance attached to these determines how the 3 key economic questions are answered Economic Efficiency – key is to accurately assess what people need and want Economic Freedom – right to make choices Economic Security – right to work, get paid, and purchase wants/needs Economic Equity – fairness as to who has access to what Economic Growth- prosperity and increased progress Economics-Biba S. Kavass

Standard of Living Quality of life based on ownership of necessities and luxuries that make life easier Factors based on: Income Employment Education Healthcare

Free Enterprise System

Free Enterprise System Characteristics: Key economic questions are answered by consumers (individuals, firms, and government) Economic Freedom – individuals and businesses own the factors of production, make what they want, and buy what they want Voluntary Exchange - exchange of good/services take place in markets – ALL parties expect to GAIN Competition – lowest prices, best products and service Incentives – ability to improve standard of living Specialization – concentration of productive efforts on a limited number of activities Consumer Sovereignty – consumers have power to decide what is produced Private property – right of ownership of resources Economics-Biba S. Kavass

INCENTIVES

Specialization vs. Division of Labor Act of focusing on completing a particular task or producing a particular good/service Can make an economy more efficient, because an individual who specializes in the production of a single good or service can make exchanges to get all the other goods or services he needs Makes us interdependent – depends on exchange from other consumers Example – English Teacher or Economics Teacher Division of Labor Act of separating the production process into isolated tasks Works well as long as everybody is pulling their load Example - assembly line, where workers are assigned to an isolated task, which they perform repeatedly throughout the workday. Economics-Biba S. Kavass

Role of the Government in Free Enterprise System Regulating Business – public disclosure, environmental rules, consumer safety, product safety Promoting Growth - price stability, regulation of banks, patents and copyrights Providing Public Goods - roads and bridges, defense, police and fire, education Providing a Safety Net – Social Security, Medicare and Medicaid, unemployment benefits Economics-Biba S. Kavass

Factor Market: where factors of production are bought/sold Product Market: where producers sell goods/services

CHECK FOR UNDERSTANDING Economics-Biba S. Kavass

Historical Figures Economics-Biba S. Kavass

Economics-Biba S. Kavass

Jean-Baptiste Say 19th century economist and businessman Say’s Law - “supply creates its own demand” – production of one good creates the production of other goods Believed to have coined the term “entrepreneur” Economics-Biba S. Kavass

Karl Marx 19th century German philosopher and economist Believed that history is a struggle between classes and that workers would overthrow the system and give control to the government Wrote “Communist Manifesto” Economics-Biba S. Kavass

John Maynard Keynes British Economist Keynesian Economics - thought that government should intervene in the market economy to smooth out ups/downs instead of waiting for the market to self-correct Economics-Biba S. Kavass

Match the Economists __ Who wrote the Communist Manifesto __ Who coined the term “entreprenuer” __ Who believed government should intervene to correct market ___ Who believed the government should “let it be” Adam Smith Jean-Baptiste Say Karl Marx John Maynard Keynes Economics-Biba S. Kavass