1. Economics Chapter 2 Section 1 Economic Systems What is an economic system? What are some types of economic systems that you may of studied in the past?

2. Economic Systems Three basic questions. What should be produced. Scarcity vs,.

3. Economic Systems How should it be produced Vs.

4. Economic Systems Who receives goods and services Vs.

5. Economic Systems To answer these questions depends on how society distributes income or Factor Payments (income, profit)

6. Economic Systems Goals Economic growth the economy must grow to supply jobs as populations grow Innovation.

7. Economic Systems Economic efficiency Society try to get the most out of the resources available

8. Economic Security All economic systems try to ensure this Safety nets Economic Equity How society doles out goods and services. Fairly or unfairly Economic freedom The ability to make your own economic decisions Economics Systems Goals

9. Traditional economy. Traditional economy. Is the oldest and simplest of economic systems. People do things as they have in the past Based off of custom and tradition Rural areas Centered on family or tribal group Change occurs slowly Standard of living is usually low.

10. Free market Economy What is a market? Exchange of goods and services. Why do they exist? They exist because we do not produce all that we need. What is specialization? All people have a specific skill.

11. Do now. What are the three questions that economic systems try to answer? What are the five goals of each economic system? What are the characteristics of a traditional economy? Why do we need markets?

12. Free Market economy Free market economy: Based off of Voluntary Exchange) Voluntary exchange – a transfer of goods and services, or ideas that someone makes willingly Use economic freedom to satisfy their wants and needs.

13. Free market economy Participants in a free market economy are household and firms. Households own factors of production but are buyers of goods and services. Firms uses resources to produce a product or service for the households

14. Circular Flow Model

15. Circular flow Circular flow shows two markets Factor market – firms purchase the factors of production from households Product market – households purchase goods and services from firms Work together to give each other what they need.

16. Competition In the marketplace Adam Smith The Wealth of Nations: Economy is made up of many exchanges Buyer and sellers only consider their self interests. Markets offered incentives or something to make a person take a certain action. Person: lower price is an incentive Firm: a product people want to buy. Which creates competition Competition regulates the market

17. Do now How does competition regulate a free market economy? Who are the participants in a free market economy? How does circular flow work in a free market economy?

18. Advantages of Free market Economic Efficiency – markets change fast according conditions Economic Freedom – people work where they want, produce what they want, people buy what they want. Consumer Sovereignty – Consumers have much of the power to decide what gets produced Economic Growth – There is competition which allows for innovation.

19. Disadvantages Economic equality Not all goods and services are doled out evenly Economic security Not everyone is guaranteed a job.

20. Centrally Planned Economy or Command Economy Centrally Planned Economy – a group of central planners makes economic decisions for the Government Resources and how are they used What goods and services are to be produced. Government owns both land and capital Decide where people will work and how much they earn

21. Centrally Planned Economy or Command Economy Socialism – is a economic system in which the means of production are owned by the state. Control services for people Government should own Centers of economic power

22. Do now What is the difference between a communist nation and a socialist nation? Who is the father of communism and what did he write?

23. Centrally Planned Economy or Command Economy Communism – political and economic system based off of socialism. Gov’t owns all property Controls all resources Gov’t’s Authoritarian Father of Communism is Karl Marx Communist Manifesto

24. Communism Two warring classes: employers and the employees, Capitalism will destroy itself. The workers or proletariat would revolt take control of all production All people share in the profit.

25. Soviet Union (U.S.SR.) Stalin Plan to boost heavy Industry and agriculture More Heavy industry, less consumer goods Communal farms Became industrialized fast but suffered shortages for the people

26. Disadvantages of Centrally Planned Economy Economic efficiency Few incentives Slow to adjust to economic conditions Economic freedom Government chooses what is good for society not for the people Economic growth Little innovation Must follow government plans

27. Advantages of Centrally Planned Economy Economic equality Goods and services should be distributed fairly People in government make more choices Successes Full employment

28. Do now 1. What are the characteristics of a free market economy? 2. What are the characteristics of a Command economy? 3. How does Karl Marx and Adam Smith differ when it comes to economic philosophies?

29. Mixed Economies Mixed economy is a market based economy in which the government has some involvement. There some economic goals that can not be met by either a command or a free market economy. Public education National defense Mass transit What are Governments willing to give up?

30. Mixed Economies Most Nations have mixed economy. Depending on the nation government involvement varies. Cuba, North Korea, Old Soviet Union (very high gov’t involvement). Russia, China and Vietnam are in economic transition. (Privatization) United States, United Kingdom (little gov’t involvement) Free enterprise, (consumers choose)