Economic Systems and Decision-Making Chapter 3: Economic Systems and Decision-Making

Economic Systems Remember the three basic questions: 1. What to produce? 2. How to produce? 3. For whom to produce?

Traditional Economies How do they answer the three basic questions? What are some advantages and disadvantages? Examples

Command Economies (Ancient and Modern) How do they answer the three basic questions? What are some advantages and disadvantages? Examples

Market Economies How do they answer the three basic questions? What are some advantages and disadvantages? Examples

Mixed Economies All modern economies have elements of all three systems – traditional, command and market Examples of each in the U.S. economy “Modified private enterprise economy”

The “Pillars” of Free-Enterprise

Private Property Rights Private ownership of economic resources Limited government interference Businesses are free to compete Businesses have an incentive to be efficient and successful

Economic Freedom Consumers choose what to buy Producers choose what to sell All exchange is voluntary

Profit Motive Encourages efficiency Encourages innovation and invention Leads to economic growth and a higher standard of living

Competition Leads to greater efficiency Results in lower prices and increased quality Leads to greater consumer choice

If one of the pillars should fall…… All four characteristics are necessary for a flourishing free-enterprise economy This gives the government a role in the economy to ensure the four pillars remain standing

The Players in the Game The Entrepreneur Essential for Economic Growth Inventors/Innovators Risk-Takers If successful: Create more and better jobs Leads to more and better pay Increase competition Creates more and better products at lower prices

The Players in the Game The Consumer “Consumer Sovereignty” Holds the power Determines what goods get produced “Dollar Votes” Every purchase is a vote for a good/service

The Players in the Game The Government Protector Provider Consumer Against discrimination, unsafe products, misleading advertising, unsafe work conditions Provider Roads, schools, libraries, social services Consumer Purchases goods and services from the private sector, employer of resources Regulator Regulatory agencies: FDA, FCC, etc.