HW CHECK: PPC Practice (I will stamp) 1. PPC FRQ Practice 2. Is America # 1 3. Why Nations Fail Today’s Topics: 1. Forced Prioritization: Economic Goals What role should the government play in the economy? 2. Unit 1 Test, 25 multiple Choice – 35 mins. Homework: None, we will begin Unit 2, Supply and Demand on Wed.

 Entrepreneurs = risk takers who combine land, labor and capital into new products.  Land = “gifts of nature”/natural resources Soil, minerals, water, forest, wind, plants, animals, solar energy, etc.  Labor = physical effort  Physical Capital = tools, equipment, machinery, and factories used in the production of goods and services.  Human Capital = people with their skills, knowledge and experience.

Scarcity forces us to decide: What goods and services will we produce with the resource we have? How will we use those resources to make those goods and services? Who will get those goods and services? How do we distribute goods and services? The way these questions are answered determines the economic system

 A system managing the factors of production and providing for the wants and needs of a people  answers the three basic questions of WHAT, HOW, and FOR WHOM. Economic Systems

 A central authority makes the most of the WHAT, HOW, and FOR WHOM decisions. The government determines the needs, sets quotas for major industries and usually provides for the basic needs of the people.  Examples:  Cuba  North Korea  Soviet Union  China under Mao Zedong

 People and firms act in their own best interest to decide the WHAT, HOW, and FOR WHOM. Buyers and sellers come together in order to exchange goods and services. Good and services are determined by demand and supply.  Hong Kong  Singapore

The Invisible Hand The concept that society’s goals will be met as individuals seek their own self-interest. Example: Society wants fuel efficient cars… Profit seeking producers will make more. Competition between firms results in low prices, high quality, and greater efficiency. The government doesn’t need to get involved since the needs of society are automatically met. Competition and self-interest act as an invisible hand that regulates the free market. 8

Market-based system in which the government plays a limited role.  United States

CommandMarket Pros Cons

CommandMarket ProsAllows for a more rational use of resources Change can occur must faster Equality and security Only what is wanted is produced. Firms will attempt to produce in the most cost-effective manner bc profits are at stake. Self-regulates ConsCan miscalculate what people need (shortages/surpluses) No incentive/competition to innovate No freedom Greed can lead to overconsumption Inequality

economic freedom NO economic freedom Pure market economy Pure command economy CapitalismSocialism Mixed economies

Heritage.org: Map of Economic Freedom

MOST FREELEAST FREE 1. Hong Kong 2. Singapore 3. Australia 4. Switzerland 5. New Zealand 6. Canada 7. Chile 8. Mauritius 9. Ireland 10. Denmark 11. Estonia 12. United States 169. Republic of Congo 170. Timor-Leste 171. Turkmenistan 172. Democratic Republic of Congo 173. Iran 174. Eritrea 175. Venezuela 176. Zimbabwe 177. Cuba 178. North Korea

What characteristics does a successful country exhibit? What can a country do to maintain or encourage economic growth? 

Economic Freedom – the ability to make our own choices with little or no interference from the government Economic Efficiency – making the most of society’s resources, with the least amount of waste. Benefits > costs. Economic Equity– fair and equal share of society’s resources, wealth and opportunities. Economic Security – protection against economic risks. Economic Growth– the production of more and better goods and services that ultimately resulting in a better standard of living.

Which economic goals do you think our economic system should prioritize? 1  MOST IMPORTANT 5  LEAST How effectively is our economic system meeting those goals? Give our system a grade.

Group Discussion As a group, you must reach a consensus on which economic goals are most important. Consensus can be difficult to reach. Possibly not every ranking will meet with complete approval from the entire group. Try to make each ranking with partial approval.

Economic Goals Class Ranking Economic Freedom Economic Efficiency Economic Equity Economic Security Economic Growth

What role should the government play in the economy?

Characteristics of Wealthy Nations Countries with high GDP per capita have institutions that encourage investment in physical capital, human capital, technological innovation and have incentives in place to organize those factors of production in a efficient manner that encourages productivity. Good government make a market economy possible by creating rules for a functioning market economy:  Rule of Law - a dependable legal system creates an environment where people feel safe to invest and innovate.  Political stability – creates an environment where people feel safe to invest and innovate.  Property Rights – provides an incentive to work hard, invest, and innovate.  Competitive and open markets – open markets encourage competition and competition by nature encourages efficiency and innovation.