Standard:12e2.3 Explain the roles of property rights, competition and profit in a market economy ESLR-Analytical Thinkers Collaborative Workers Effective Communicators

Chapter 2 Section 1 Terms  Traditional economy  Command economy  Market economy  Self-interest  Incentive  Mixed economy  Authoritarian socialism  Capitalism  Democratic socialism

Objectives  Explain how the three basic economic questions are answered in traditional, command, and market economies  Describe the roles of self-interest and incentives in a market economy  Describe the types of mixed economies that exist today

Your school  Which factors influence economic decisions in your school?  Who makes these decisions?  What are these decisions based on?

The United States  Which factors influence economic decisions made in your country?  Who makes these decisions?  What are these decisions based on?  Would these answers be different in other countries?

Pure Economic Models  Traditional Economies- tradition and customs answer the 3 basic questions: “For Whom to Produce” “What to produce”? “How to Produce”  Command- government officials, central planners  Market- individuals, free exchange of goods and services.

Adam Smith  The market is driven by self-interest. People work to fulfill their needs and wants.  The invisible hand should regulate the economy.  Also known as laissez- faire economics

How do we decide what is in our self-interest?  The Market offers incentives – these encourage you to act a certain way.  Sometimes incentives are rewards, sometimes punishments.  Can you think of an incentive that brought you to school today? A negative incentive?

All economies today are “mixed”  Mixed economies blend the elements of traditional, command and market types  They are: Authoritarian Socialism Capitalism Democratic Socialism

Authoritarian Socialism  Also known as Communism  Government owns or controls nearly all the factors of production REVIEW- What are the 4 factors of production?

Karl Marx  Felt that life was a struggle between the bosses (bourgeoisie) and the workers (proletariat).  Workers should run things and split the profits, they should get rid of the bosses

Capitalism  Individuals own the factors of production  They answer the basic economic questions  Government does play a role.  They provide services like health care and defense.  Government also regulates industry. For example, safety standards at your job.

United States, Canada, Mexico, Japan are Capitalistic countries

Democratic Socialism  Falls in between Communism and Capitalism  Government owns SOME of the factors of production such as utilities  Individuals control the rest of the factors of production, there are incentives and choice just like in Capitalism

Sweden, Poland, France

Smith vs. Marx  In teams of 3-4 Divide the 2 readings “The Wealth of Nations” and “Das Kapital”  Each team member should read and summarize ½ of an article.  All team members discuss and answer Question #2 on each reading.