Chapter 2 Section 1 Economic Systems

2 I. Describe the characteristics of the traditional economy. A. Economic System – An organized way of providing for wants and needs of a society. A. Economic System – An organized way of providing for wants and needs of a society. B. WHAT, HOW, and FOR WHOM. B. WHAT, HOW, and FOR WHOM.

3 I. Describe the characteristics of the traditional economy. C. Traditional Economy- Economic system in which basic economic activity stems from ritual, habit, or customs. C. Traditional Economy- Economic system in which basic economic activity stems from ritual, habit, or customs.

4 I. Describe the characteristics of the traditional economy. C. Traditional Economy C. Traditional Economy 1) Strengths1) Strengths A) Everyone knows which role to play.A) Everyone knows which role to play. B) Born into roles.B) Born into roles. C) Life is predictable and stable.C) Life is predictable and stable.

5 I. Describe the characteristics of the traditional economy. C. Traditional Economy C. Traditional Economy 2) Weaknesses2) Weaknesses A) Discourages new ideas and new ways of doing things.A) Discourages new ideas and new ways of doing things. B) Lack of progress.B) Lack of progress.

6 II. Explain the strengths and weaknesses of the command economy. A. Command Economy – Economic system in which basic economic decisions are made by a central authority. A. Command Economy – Economic system in which basic economic decisions are made by a central authority.

7 II. Explain the strengths and weaknesses of the command economy. B. Command Economy B. Command Economy 1) Strengths1) Strengths A) Can change direction drastically in a short time.A) Can change direction drastically in a short time.

8 II. Explain the strengths and weaknesses of the command economy. B. Command Economy B. Command Economy 2) Weaknesses A) Not designed to meet the needs and wants of individuals.A) Not designed to meet the needs and wants of individuals. B) Lacks incentives for people to work hard.B) Lacks incentives for people to work hard. C) Requires a large decision-making bureaucracy.C) Requires a large decision-making bureaucracy. D) Lacks the flexibility to deal with minor problems.D) Lacks the flexibility to deal with minor problems.

9 III. Examine the strengths and weaknesses of a market economy. A. Market Economy – Economic system in which basic economic decisions are made by people and firms acting in their own best interest. A. Market Economy – Economic system in which basic economic decisions are made by people and firms acting in their own best interest.

10 III. Examine the strengths and weaknesses of a market economy. B. Market Economy B. Market Economy 1) Strengths A) Can adjust to change over time.A) Can adjust to change over time. B) Has decentralized decision making.B) Has decentralized decision making. C) It gives producers and consumers a great deal of freedom.C) It gives producers and consumers a great deal of freedom. D) Relatively small degree of government interference.D) Relatively small degree of government interference. E) High degree of customer satisfaction.E) High degree of customer satisfaction.

11 III. Examine the strengths and weaknesses of a market economy. B. Market Economy B. Market Economy 2) Weakness A) FOR WHOMA) FOR WHOM

END OF SECTION 1

Section 2 Evaluating Economic Performance

14 I. Describe the basic economic and social goals used to evaluate economic performance. A. Economic freedom – An economic goal that is based on the desire of people to make their own decisions. A. Economic freedom – An economic goal that is based on the desire of people to make their own decisions.

15 I. Describe the basic economic and social goals used to evaluate economic performance. B. Economic Efficiency – Factors of production must be used wisely. B. Economic Efficiency – Factors of production must be used wisely. C. Economic Equity – Based on a sense of fairness. C. Economic Equity – Based on a sense of fairness.

16 I. Describe the basic economic and social goals used to evaluate economic performance. D. Economic Security D. Economic Security 1) Social Security – Federal program of disability and retirement benefits. 1) Social Security – Federal program of disability and retirement benefits.

17 I. Describe the basic economic and social goals used to evaluate economic performance. F. Price Stability – F. Price Stability – 1) Fixed Income - Income that does not increase even though prices go up. 1) Fixed Income - Income that does not increase even though prices go up. 2) Inflation – Rise in the general level of prices. 2) Inflation – Rise in the general level of prices.

18 I. Describe the basic economic and social goals used to evaluate economic performance. G. Economic Growth – G. Economic Growth – 1) Needed to meet everyone’s future needs. 1) Needed to meet everyone’s future needs. 2) Satisfy the wants and needs of a growing population. 2) Satisfy the wants and needs of a growing population.

19 I. Describe the basic economic and social goals used to evaluate economic performance. H. Origins of the seven major economic goals – H. Origins of the seven major economic goals – A combination of the beliefs and statements of American consumers, business people, and government officials. A combination of the beliefs and statements of American consumers, business people, and government officials.

20 II. Examine the trade-offs among economic and social goals. A. The economic system of the United States is flexible enough to allow choices, compromise, and to satisfy the majority. A. The economic system of the United States is flexible enough to allow choices, compromise, and to satisfy the majority.

END OF SECTION 2

Section 3 Capitalism and Free Enterprise

23 I. Explore the characteristics of a free enterprise system. A. Capitalism – Economic system in which private citizens own the factors of production. A. Capitalism – Economic system in which private citizens own the factors of production. B. Competition – The struggle among sellers to attract consumers while lowering costs. B. Competition – The struggle among sellers to attract consumers while lowering costs.

24 I. Explore the characteristics of a free enterprise system. C. Free Enterprise Characteristics C. Free Enterprise Characteristics 1) Economic freedom –1) Economic freedom – people have choices people have choices 2) Voluntary exchange –2) Voluntary exchange – buyers and sellers freely and willingly engage in market transactions buyers and sellers freely and willingly engage in market transactions

25 I. Explore the characteristics of a free enterprise system. C. Free Enterprise Characteristics C. Free Enterprise Characteristics 3) Private Property3) Private Property People have the right to control their possessions as they wish People have the right to control their possessions as they wish 4) Profit Motive4) Profit Motive Driving force that encourages people and organizations to improve their material well- being. Driving force that encourages people and organizations to improve their material well- being.

26 I. Explore the characteristics of a free enterprise system. D. Profit –D. Profit – Extent of being better off at the end of the day than you were at the beginning. Extent of being better off at the end of the day than you were at the beginning.

27 II. Describe the role and importance of the entrepreneur. A. Start new businesses. A. Start new businesses. B. Are willing to take risks. B. Are willing to take risks.

28 III. Examine the role of the consumer as “sovereign”. A. Consumer Sovereignty A. Consumer Sovereignty Concept that the consumer is the ruler of the market. Concept that the consumer is the ruler of the market. B. “The Customer is Always Right” B. “The Customer is Always Right” C. Consumers decide what to purchase. C. Consumers decide what to purchase.

29 IV. Describe the role that the government plays in free enterprise. A. Protector - A. Protector - Laws for our health and safety. Laws for our health and safety. B. Provider and consumer - B. Provider and consumer - C. Regulator of business - C. Regulator of business - D. Promoter of national goals - D. Promoter of national goals -

30 IV. Describe the role that the government plays in free enterprise. E. Mixed Economy E. Mixed Economy Free economic activity is subject to some government intervention and regulation. Free economic activity is subject to some government intervention and regulation.