ECONOMIC SYSTEMS AND INCENTIVES An economic system is an organizational structure for addressing what, how, and for whom to produce. An incentive is the prospect of a reward or punishment that influences a decision or motivates greater effort. Discussion: What incentives do you have to be a good student to get an education that helps you land a good job?

TRADITIONAL ECONOMIES In a traditional economy, decisions about resources are made by habit, custom, superstition, or religious tradition. Discussion: Can you provide examples of any traditional economies? Amish, Inuit Indians in Alaska, others?

COMMAND ECONOMIES In a command economy, central planners make the important decisions about what, how, and for whom to produce. Communism is a political- economic system under which all resources and businesses are publicly owned and economic decisions are made by central authorities. Socialism is an economic system under which most resources and businesses are publicly owned and economic decisions are made by groups of workers and consumers. Discussion: What are some of the pros and cons of a command economy? government powers vs individual choice, government inefficiency and inequality, keeping the status quo.

MARKET ECONOMIES In a market economy, most key economic decisions are made by business owners and consumers. In a capitalist system, most resources and businesses are privately owned. A free- enterprise system is an economic system based on private(individual or business) ownership of resources and voluntary exchange. Discussion: What are some of the pros and cons of a market or capitalist economy? Ability to pay when choosing goods or services depend on income. Lack of some government protections may harm society. Many more goods and services provided.

MIXED ECONOMIES A mixed economy combines a market economy with significant government involvement and elements of tradition. Governments in market economies have expanded their roles in the pursuit of equity, economic security, and sustainability. Have students research the list of economically free nations in the world from both the Frazer Institute and the Heritage Foundation.

ECONOMIC SYSTEMS Discussion: Which system seems the most efficient? Why?

THE THREE BASIC ECONOMIC QUESTIONS 1. What should be produced? 2. How should it be produced? 3. For whom should it be produced? Demand and supply drive what SHOULD be produced in the US but not everywhere. The method depends on the PROFIT motive…what are the costs of production? WHO is the market that will demand and supply the good ? How will the exchange be made? How will payment be received?

Are your favorite goods produced? Is your favorite food sold? Is your least favorite food sold? If your favorite food is easier to find then your least favorite world, resources are being allocated well to serve your dietary needs.

How should we produce a guitar? A guitar can be made by workers A guitar can be made alone Small number of jigsaws Industrial robots Materials- lots of decisions need to be placed

For whom should it be produced? One must think about their target audience Demographics SES Age

SOCIETY’S ECONOMIC GOALS Economic Growth- correlated to standard of living Efficiency- example of meat in India Equity- sense of fairness Economic Security- the confidence and ability to support themselves and their families; leads to a social safety net- gives assistance to those in needs Economic Freedom- people the ability to make economic decisions for themselves Quality of life Sustainability The standard of living is a measure of comfort in terms of the goods and services available. Explain how economic growth is measured—GDP; Describe Efficiency-productive and allocative; Discuss Equity-opportunity and income distribution; Discuss Security=stability both privately and publicly; Describe Freedom-choices for both careers and as a consumer.

TRADEOFFS AMONG GOALS Tradeoffs force societies to prioritize among economic goals. When the gains from change exceed the losses, it is possible to achieve an improved standard of living without neglecting the goals of equity and economic security. Discussion questions What is your definition of a “good” or adequate standard of living? Does the definition change with age and life circumstance? How does scarcity and the need to make tradeoffs affect your answer? How does that compare to other nations?