Section 5-1 Comparing Economic Systems

What is Economics? The social science that examines how societies use scarce resources to produce and distribute goods and services that satisfy peoples’ wants and needs. The study of choices about using resources.

Macro vs. Micro Macroeconomics: economics on a national and global scale and concerned with decisions made by governments. Microeconomics: focuses on economic decisions made by individual people and businesses. The two are interrelated. As a consumer, you both affect the national economy and are affected by it.

Economic System The way a society uses resources to satisfy its people’s needs and wants. Develop in response to the _______ of ______ resources.

Economic Resources- Things that you may use to reach your goals Money Time Skills Personal Energy Community Agencies

Scarcity– the fundamental problem that all economic systems try to solve A society cannot provide everything its people want.

Opportunity Cost Because of limited resources – the value of the best alternative given up

Because of limited resources and the problem of scarcity, we have: Three Basic Questions 1.What _____ 2.How _____ 3.Who ____

Types of Economic Systems Four Basic Types: – Theoretical Traditional Economy Command Economy Market Economy – Mixed Economy

Traditional (subsistence) Economy Decisions about what to produce, how and for whom are based on traditional customs and beliefs of the society Limited technological advancements For example: people hunt, fish, farm and live in the way their ancestors did Rare but a few exist in _____, ________ areas in various parts of the world.

Command (controlled) Economy Decisions about what to produce, how and for whom are decided by a central government Government leaders control all resources and make all decisions Can you think of a country in the past or present that are like this?

Market (capitalist) Economy Decisions about what to produce, how and for whom are decided by individual acting in their own self-interest Has free market for buyers and sellers and can be big like the stock market or small like a neighborhood car wash

Mixed Economy A combination of the command and market economic systems. – The idea of a free market with government controls. – Most of the world’s economies fall into this category but at different levels of each system. Ex: US v. China

US Economic System The economic goals of the United States: – Growth: an increase in the amount of goods and services produced over time – Efficiency: wide use of limited resources – Stability: a steady level of economic wellbeing, without wild ups and downs – Justice: an economic system that treats citizens fairly – Security: support systems for citizens who face economic hardship through no fault of their own

Fundamental Characteristics to the US Economy Private property: Freedom of choice: Freedom of enterprise: Limited government control:

Check Your Understanding: Each economic system must answer three questions. What are they? How does a command economy differ from a market economy? Describe three characteristics of the US economy.