C H. 2: E CONOMIC S YSTEMS S1: Answering the 3 Economic Questions S2: The Free Market S3: Centrally Planned Economies S4: Mixed Economies

B ELL W ORK Get books/folders ready Copy Chart on page 23 somewhere in notes Fill this in as we go along in notes Will help give you an overview of section Answer Chapter 2 Warm-up Pg. 12 A-D

2.1: A NSWERING 3 E CONOMIC Q UESTIONS Chapter 2 Essential Question “How does a society decide who gets what Goods/Services” Section 1 Guiding Question “What Goals/Values affect how a society answers the key economic questions?” S.1 Objectives: 3 Economics questions Societal values that determine how they are answered Characteristics of Traditional Economy Key Terms /Flash/Ch02/Econ_OnlineLectureNotes_ch2_s1.swf /Flash/Ch02/Econ_OnlineLectureNotes_ch2_s1.swf

I NTRODUCTION Goals/values that affect how a society answers key ?s Each society is guided by its economic system Affects the way it does business w/in society and w/other societies A societies values, such as freedom or tradition, guide the type of economic system they will have

3 ECONOMIC QUESTIONS B/C of scarce resources a society must answer 3 ?s What goods/services should be produced? How should these goods/services be produced? Who consumes these goods/services? How ?s are answered defines type of economic system society has

Q UESTION 1 & 2 What goods/services should be produced? Society must decide what to produce in order to satisfy wants/needs of its people Because of scarcity (limited resources), each decision comes at an opportunity cost How should goods/services be produced? As a society decides, it considers…… How to best use its 3 factors of production Land Labor Capital : human/physical Look at Figure 2.1 on pg. 24 (read/answer TPS) What does each choice involve? Trade-offs

Q UESTION 3 Who consumes goods/services? Mostly determined by how a society distributes income Through factor payments, including profits, society can determine who will be consumers of goods/services How much will owners make, teachers, bankers, etc. Answer can tell a great deal about societies values

E CONOMIC G OALS Efficiency Freedom Security Equity Growth

E CONOMIC E FFICIENCY Societies answer 3 ?s based on importance they attach to their economic goals Scarce resources make societies try to maximize what they can produce using their resources If they can accurately assess what to produce they can increase their efficiency

E CONOMIC FREEDOM AND SECURITY Some societies limit the economic freedoms of its people U.S., we face some limitations, but in general, we have a lot of freedom Economic systems also strive to achieve a degree of economic security Basically, systems are there to reassure people that goods/services will be available and they will get paid for work as well

E CONOMIC E QUITY AND G ROWTH Another goal that is defined differently in different societies. Basically how they will divide their “pie” Checkpoint : “What are 2 examples of economic goals?” Growth: Economies need to grow Need to provide jobs for new people in workforce Strive to improve standards of living Innovation plays a large role in economic growth and success

E CONOMIC GOALS IN CONFLICT There are some additional economic goals for certain societies Environmental protections Full employment Protecting national industries Societies end up having to prioritize their economic goals (arrange them in order of importance) Each choice comes with some kind of trade-off

T RADITIONAL E CONOMIES Oldest and simplest economic system Rely on habit, custom, or ritual Revolve around family Little room for innovation/change Found in communities that… Stay small and close Work to support entire community over selves Success is judged by how they meet their own needs Often lack modern conveniences Lower standards of living

L ESSON C LOSING Complete pg. 13 Exploration; Both A and B HW and some of BW tomorrow Page 55 Evaluating U.S. Economy Read Section 2

C HAPTER 2 B ELL -W ORK Get Books/Folders Finish up pg. 55 Copy chart for S2 to top of notes or sheet Fill in Chart from section 1 that you copied Go over answers

C HAPTER 2 : S ECTION 2 “What are the characteristics of a free-market economy?” write on top of notes Objectives Explain why markets exist Analyze a circular flow model of a free-market economy Describe self-regulating nature of marketplace Identify advantages of free-market economy Key Terms 5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s2.swf 5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s2.swf

I NTRODUCTION What are the characteristics of Free-market economy? Characterized by….. Households and firms Factor and product markets Self-interest Competition Economic freedom, efficiency, and equity

W HY DO MARKETS EXIST ? Markets exist to eliminate the need for any one person to be self-sufficient Examples: NYSE, Farmers markets, Scheel’s, Wal-Mart They allow us to exchange the things we have for things we want Money for goods/services in most cases Lead to specialization Rather than self-sufficiency, we specialize in a few products/services Leads to efficient use of 3 factors of production Allows businesses to focus on limited number of related products/services Markets are needs as an arena to buy/sell products

F REE MARKET ECONOMY 3 ?s answered by voluntary exchanges in Marketplace Individuals choose What gets made How it is made How much people can consume of good/service Individuals/Private businesses own factors of production Look at figure 2.2 pg. 31 Need to understand what each sector provides one another Answer two questions…. TPS

F ACTOR AND P RODUCT MARKETS Factor Market Firms purchase factors of production Renting/buying land, hiring/paying workers, borrowing $$ Product Market Arena where households buy good/services a firm produces Checkpoint: What is the role of firms in the free-market economy? Firms buy factors of production from households, then uses them to produce goods/services

S ELF R EGULATION Wealth of Nations Adam Smith observed countless transactions in marketplace that showed…. Buyers/Sellers only consider their self-interests Smith’s take Positive incentives of lower prices causes more buying B/C opportunity cost of the purchase is lowered Regulations Self-interest is the motivating force in the free-market Consumers pursue their self-interest by looking for lower/lowest prices

S ELF -R EGULATION Competition Firms seek to make higher profits by increasing sales Competition among firms makes increasing sales not always possible Self-interest and competition work together to regulate the marketplace Smith called this the “Invisible Hand”

A DVANTAGES OF F REE M ARKET “Perfect Conditions” lead to meeting these goals Read aloud…. Pg.34 Efficiency Rapid response to changing conditions Freedom Large degree of economic freedom Growth Encouragement of economic growth Lend themselves to consumer sovereignty Consumers have power to decide what gets produc

A NSWER THE Q UESTION TO CAPTION ON PG. 32

L ESSON C LOSING Workbook Pg. 14 Pg. 63 HW Read Section 3 Finish up pg. 63 Activity