1-3 Economic Systems n Goals: –Identify the 3 economic ?s –Differentiate among the main types of economic systems –Describe the economic systems of the United States

Key Economic Questions n What goods and services are to be produced? –What is needed? –What is wanted? n How should the goods and services be produced? –What methods/machinery/technology? –What resources should be used? n For whom should the goods and services be produced? –Who needs them? –Who wants them?

What to Produce? n Nations differ in their wants like people do. –Providing technology vs. providing food, clothing, and shelter –Emphasis in space travel vs. military force n Meeting everyone’s wants is a challenge. –Decisions must be made on which kinds of goods and services are valued the most and best serve the nation.

How to Produce? n What combination of resources can be used most effectively and efficiently? –Human resources? –Natural resources? –Capital resources? n What resources are available to use?

For Whom to Produce? n What citizens will benefit from the production of goods and services? n Whose needs and wants are the most critical? n How will the goods be distributed? n Should the goods and services be shared equally? In the U.S., with our plentiful supply of goods & services, what you buy is largely determined by the amount of money you have and are willing to spend

Types of Economic Systems n A nation’s plan for answering the key economic questions is called its economic system n There are several systems operating in the world today: –Command economy –Market –Traditional –Mixed Which one represents the United States?

Command Economy n Resources are owned and controlled by the government –Directed through organized agencies n Decisions include: –How the nation’s resources will be used –How much of a good will be produced –How much the goods/services will cost n Characteristics: –May use the military or force to command –Freedom of the people is limited –Citizens have little to say

Market Economy n The economy runs through buying and selling activities in the marketplace –Any place where buyers and sellers exchange goods, services, and some form of $ n Characteristics: THE USA!!! –Democratic form of government “For the people, by the people.” –No one tells consumers what to buy or sellers what to make and sell –People and businesses make decisions based on their own interests

Traditional Economy n Goods are produced the way they have always been produced. –Children of each generation are taught to use the same method –Goods are typically produced by hand –Simple tools using people or animals for energy are used n Change and growth occur slowly in these countries –People are poor in material goods –Countries are less developed

Mixed Economy n Combines elements of both command and market economies –Former Soviet Union (communism) China –Moving toward market system for some economic decisions

Our Economic System n Capitalism – the private ownership of resources by individuals vs. govt. n Free Enterprise System n Private Enterprise System –Economic resources are privately owned by individuals rather than the government FREEDOM FREEDOM FREEDOM

Features of our Economic System 1. Private Enterprise 2. Private Property 3. Profit 4. Competition 5. Freedom of Choice

Features of our Economic System n Private Enterprise –A business is an establishment that supplies people with goods/services in exchange for payment in some form –Private enterprise is the right to own a business, choose what business to enter, and choose what to produce with only limited government direction Start or invest in any business You are free to be anything you wish

Private Property n Your rights: –You and/or your business can own, use, or dispose of things of value within the law You can own a car You can use a car You can buy a car You can trade a car You can sell a car You can give away a car You can throw away a car ISN’T IT GREAT? ISN’T IT GRAND?

Profit n Businesses supply goods/services for one main reason = PROFIT! –$ left from sales after subtracting all the costs of operating the business. REVENUE-EXPENSES=PROFIT –Businesses are entitled to make profits because they run the risk of taking a loss. They have a profit motive. People are willing to invest money in a business and to develop new products to satisfy consumers’ wants.

Competition n The rivalry among businesses to sell their goods and services to buyers –Allows the consumer to make choices –Compare: Price *Quality Appearance*Usefulness Appeal*Durability –If you are not satisfied, you can buy from a competitor –Encourages businesses to improve products, offer better services, keep prices reasonable, and produce new things.

Freedom of Choice n You have the right to: –Enter a business or career of your choice –Own property –Make a profit –To compete –To buy where and what you please –To travel –To express your opinions BE THANKFUL! APPRECIATE YOUR FREEDOM!

Mixed Economic Systems n Some countries combine government ownership and control of basic industries with some private ownership of consumer-goods businesses. –i.e Farmers, after meeting the govt’s quota for crop production, are allowed to sell the rest of their crop for a profit n In the U.S, some government-operated enterprise exist –Post office, schools, city water agencies (Mixed capitalism)

Take a Look at Economies n Economic success of market economies –Causes countries to reexamine their systems Not designed to meet the wants and needs of people Workers with different skills and responsibilities receive similar wages –No incentive to work hard Many have changed to a mixed economy –I.e..e. Soviet Union (Communism collapse)