1. Economic Systems Every society has an economic system to produce and distribute goods and services. All societies use an economic system to provide for needs and wants of their people. Depends on that society’s goals and values

2. What goods and services should be produced? Because of scarcity no country can produce every good it wants in the quantity it would like. How should these goods and services be produced? Will production decisions be made by individuals or by the government? Who consumes these goods and services? Will the government decide? Will price decide?

3. Economic Freedom – cornerstone of American society Allowing individuals to make economic choices about earning income, owning property, and purchasing goods and services Example: Individuals want to choose their own occupation or open a store if they choose

4. Economic Efficiency Maximizing output of goods and services from the resources available Example: don’t waste resources, fewer goods and services can be produced if resources are wasted

5. Economic Equity Dividing resources in a way that is considered fair Examples: minimum wage Can’t discriminate on the basis of age, sex, race, religion, or disability in employment

6. Economic Security and Predictability (Stability) Assuring people that goods and services will be available Providing aid for retirement and in difficult times Low inflation and unemployment Examples: social security, unemployment

7. Economic Growth and Innovation Encouraging the development of new ideas and skills; helping the economy grow Examples: Hope for a better job, newer car, or their own home

8. Market - an arrangement that allows buyers and sellers to exchange They exist because no one is self-sufficient Example: I, Pencil

9. Division of Labor organizes work so that each individual worker completes a separate part of the work. Makes worker more proficient. Division of Labor makes specialization possible.

10. Specialization makes us more efficient. Factors of Production are used in most efficient manner. Divide labor then have people who are specialized in their field to do their task. Example: Assembly line

11. Traditional Market Command Mixed

12. Ritual Habit Custom The basic economic questions of WHAT, HOW, WHO are answered by doing things the way they have always been done.

13. Everyone knows which role to play Little uncertainty of what or how to produce Stable, predictable, and continuous life Customs and traditions determine who is provided for Family and community ties are strong

14. Individuals generally not free to make decisions on occupation Discourages new ideas, new technology, and new ways of doing things, leading to stagnation and a lower standard of living Have few mechanisms in place to deal with disasters such as floods, drought Strict rules defined by elders Consumer choices are rare Methods of production are often inefficient

15. India – Caste System Tribal areas in Africa U.S. – take over parent’s business

16. Government Leaders Or Central Authority Committee The basic economic questions of WHAT, HOW, and WHO are answered by the government.

17. The government owns the factors of production so resources can be quickly rerouted Can change direction drastically through emphasizing/allocation Health and public services are available to everyone for little or nor cost Little uncertainty over choice of career, where to work, or losing job

18. Basic wants and needs of the consumers are ignored Lacks effective incentives to get people to work or show inventiveness Economies tend to be unproductive, not producing a good product Requires large bureaucracy, which consumes resources and lacks flexibility Severely limits private property rights Individual freedoms and initiative are limited

19. TODAY North Korea Cuba Former U.S.S.R. China before 1989

20. Centrally planned economies face problems of poor-quality goods, shortages, and diminishing production.

22. Buyers and Sellers Dollars “Vote” The basic economic questions of WHAT, HOW, and WHO are answered by consumers and business jointly.

23. Allows people to make decisions in their own best interest Buyer and sellers exchange goods and services in a market. Market economics is based on capitalism. Capitalism means that the factors of production are privately owned. Basics

24. High degree of individual freedom Adjust gradually to change over time Small degree of government interference Decentralized – not concentrated in the hands of a few Large variety of goods and services High degree of consumer satisfaction Consumer purchases send signals to producers to keep producing

25. Not everyone is provided for - rewards only productive resources - not too young, too old, or too sick to work Workers and businesses face uncertainty as a result of competition and change – no guarantee for job Does not produce enough public goods such as defense, universal education, or health care Little incentive to engage in unprofitable ventures like caring for the sick.

26. Hong Kong Singapore

27. Mixed economies are systems that combine traditional and the free market with limited government intervention.

28. Provides assistance for some people who might otherwise be left out Government creates laws protecting property rights and enforcing contracts Governments provide for national defense, roads and highway systems, conservation, environmental protection, education

29. More services mean higher costs for citizens overall – in the form of taxes In socialist countries, availability of services may be limited or quality deteriorates over time. Loss of decision making ability if your business falls under government regulations.

30. Key is to balance control and freedom U.S. is a mixed Economic System All most all countries in the world have some degree of mixed economic system. United States, Canada, India, United Kingdom

31. Continuum of Mixed Economies Centrally plannedFree market Iran North Korea Cuba China RussiaGreecePeruUnited States South AfricaFranceUnited Kingdom BotswanaCanadaSingapore Hong Kong

32. Directed by command CommunismSocialism Directed by Free Market Capitalism Ownership of resources All productive resources are government owned and operated Basic productive resources are government owned and operated; the rest are privately owned and operated Productive resources are privately owned and operated. Allocation of resources Centralized planning directs all resources. Government plans ways to allocate resources in key industries. Capital for production is obtained through the lure of profits in the market. Role of Government Government makes all economic decisions. Government directs the completion of its economic plans in key industries. Government may promote competition and provide public goods.

33. British Economist and Father of Capitalism Believed society benefited from the pursuit of self- interest and whose beliefs influenced the U.S. and other economic systems Introduced the idea that division of labor led to the great prosperity of Britain Defined the wealth of a nation as the sum of the goods produced by its people (labor is wealth) Wrote The Wealth the Nations in 1776 Marked the beginning of modern economic thought

34. “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” “He intends only his own gain, and he is in this... led by the invisible hand to promote an end which was no part of his intention”

35. In every transaction, the buyer and seller consider only their self-interest, or their own personal gain. Self- interest is the motivating force in the free market. Producers in a free market struggle for the dollars of consumers. This is known as competition, and is the regulating force of the free market. Competition keeps prices down and creates better products

36. The interaction of buyers and sellers, motivated by self-interest and regulated by competition, all happens without a central plan. This phenomenon is called “the invisible hand of the marketplace.” He suggested the role of government should be limited to enforcing contracts, granting patents, and copyrights to encourage inventions and new ideas, and providing public works, such as roads and bridges. Laissez-faire – “let it be” – government keep out

37. Why Steaks Get to New York: Market Coordination and the Invisible Hand

38. Economic historian and social scientist Considered the Father of Socialism/Communism Believed the group’s needs should be put ahead of the individual Beliefs influenced the United States and other economic systems Ideas inspired the communist revolutions Published The Communist Manifesto 1848 Argued labor was exploited in capitalism and wealth should be spread equally among those who needed it

40. The right to own property is protected by the US Constitution The right to decide how private property is used is part of the US economic system Incentive to use efficiently

41. Make exchanges with one another – establish prices for goods, services and resources Look at prices for guidance Provide incentives that encourage businesses

42. Competition for resources Skilled worker Money Competition for products Profit Efficiency of production

43. Seeing opportunities and acting on the to introduce new or better goods and services to the market Taking risks by investing their time and money – knowing they may fail