1. Explorations in Economics
Alan B. Krueger & David A. Anderson

2. Chapter 2: Comparing Economic Systems
Module 4: Using Resources to Achieve Economic Goals
Module 5: Types of Economic Systems
Module 6: The Modern Market Economy

3. MODULE 4: Using Resources to Achieve Economic Goals
KEY IDEA:
Every society must determine how to use its resources to achieve its economic goals.
OBJECTIVES:
To explain the three basic economic questions.
To identify five economic goals that societies pursue.
To describe tradeoffs made among the five goals.
Reminder that resources are scarce. Use an example of a tradeoff : to sleep in or come to class on time; buy a big hamburger or slice of pizza; choose college or work after high school.

4. THE THREE BASIC ECONOMIC QUESTIONS
1. What should be produced? 2. How should it be produced? 3. For whom should it be produced?
Demand and supply drive what SHOULD be produced in the US but not everywhere.
The method depends on the PROFIT motive…what are the costs of production?
WHO is the market that will demand and supply the good ? How will the exchange be made? How will payment be received?

5. What should be produced?
Resources are limited.
TRADEOFFs - If more of some goods are produced, less of others must be produced.
6/15/2018
Chapter 2: Modules 4,5 & 6

6. How should it be Produced?
Choosing which combination of resources to use in the production of each good and service.
There is more than one way to produce and different ways to use different combination of resources.
Example: assemble parts by hand, or use industrial robots.
Goal - Efficiency
6/15/2018
Chapter 2: Modules 4,5 & 6

7. For Whom to Produce?
Because people don’t agree about what is fair and what is best, the “For whom?” question creates frequent and heated public debates.
Is the distribution of goods efficient or fair?
Example: Healthcare, Education,
6/15/2018
Chapter 2: Modules 4,5 & 6

8. SOCIETY’S ECONOMIC GOALS
The standard of living is a measure of comfort in terms of the goods and services available.
Economic Goals:
Efficiency
Equality
Economic Security
Economic Freedom
Growth/Sustainability
Explain how economic growth is measured—GDP;
Describe Efficiency-productive and allocative;
Discuss Equity-opportunity and income distribution;
Discuss Security=stability both privately and publicly;
Describe Freedom-choices for both careers and as a consumer.

9. Equality
The idea that is that if there are equal opportunities for quality education and jobs
People end up with unequal outcomes
Outcomes are result of the choices individuals make.

10. Economic Security Social safety net
Any form of government assistance for those with financial needs
Examples:
Unemployment insurance
workers’ compensation (victims of work related injuries)
social security (retired and disabled)
supplemental nutrition assistance (to put food on the table of low-income households)
6/15/2018

11. Economic Freedom People can make economic decisions for themselves.
People prefer to live in a country where they are free to choose where to live, what goods and services to buy, and what type of work to perform.
Benefits of making best choices are lost if people are not free to make those choices.
Cash is greatest gift - recipient can choose whatever he wants with it.
6/15/2018

12. Growth and Sustainability
Ability to continue production indefinitely.
Goal: To sustain that production and the standard of living it supports.
Production levels are unsustainable if they are being used up faster than they become available.
Example: if farmers overwork their land, nitrogen and other nutrients in the soil are depleted, crop production falls.
6/15/2018

13. TRADEOFFS AMONG GOALS
Tradeoffs force societies to prioritize among economic goals. When the gains from change exceed losses, an improved standard of living is possible without neglecting the goals of equity and economic security.
Discussion questions
What is your definition of a “good” or adequate standard of living?
Does the definition change with age and life circumstance?
How does scarcity and the need to make tradeoffs affect your answer?
How does that compare to other nations?

14. MODULE 4 REVIEW What is… A. Standard of living? B. Equity?
C. Efficiency?
D. Economic security?
E. Social safety net?
F. Economic freedom?
J. Economic growth?
Use the online resources to review key terms
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

15. MODULE 5: Types of Economic Systems
Organizational structure for addressing what, how, and for whom to produce.
Economic Systems:
Traditional Economy
Command economy
Market economy
Mixed economy.
Recall the set of economic goals: Economic Growth, Efficiency, Economic Security, Economic Freedom
Discussion:
What is an economic system? What type of system do you think we have here?

16. TRADITIONAL ECONOMIES
Decisions about resources are made by habit, custom, superstition, or religious tradition.
Decisions require very little planning, and people in traditional economies just do what is expected, which is the same as what has always been expected.
Examples: Part of Africa,
or in traditional agricultural
villages, or the Amish
Discussion: Can you provide examples of any traditional economies? Amish, Inuit Indians in Alaska, others?

17. COMMAND ECONOMIES
Central planners make the important decisions about what, how, and for whom to produce. Communism – political/economic system All resources, property, and businesses are publicly owned and economic decisions are made by the government. Socialism – economic/political system Resources and businesses are privately and publicly owned. Economic decisions made by groups of workers consumers, and government. Examples: China, Russia
Discussion: What are some of the pros and cons of a command economy? government powers vs individual choice, government inefficiency and inequality, keeping the status quo.

18. MARKET ECONOMIES
Most key economic decisions made by business owners and consumers. Capitalist system most resources and businesses are privately owned. Free Enterprise system based on private (individual or business) ownership of resources and voluntary exchange.
Discussion: What are some of the pros and cons of a market or capitalist economy? Ability to pay when choosing goods or services depend on income. Lack of some government protections may harm society. Many more goods and services provided.

19. MIXED ECONOMIES
Combines a market economy with significant government involvement (command) and some elements of tradition. Governments in market economies evolve into mixed economies by expanding their roles in the pursuit of equity, economic security, and sustainability. Most Democratic, Capitalist countries use a mixed economy (USA, Canada, Mexico, etc.)
Have students research the list of economically free nations in the world from both the Frazer Institute and the Heritage Foundation.

20. INCENTIVES, ADVANTAGES, and DISADVANTAGES
ECONOMIC SYSTEMS:
INCENTIVES, ADVANTAGES, and DISADVANTAGES
Incentive:
The prospect of a reward or punishment that influences a decision or motivates greater effort.
Discussion:
What incentives do you have to be a good student to get an education that helps you land a good job?

21. Traditional Economies: Incentives
Social approval for performing well at traditional role
Disapproval for rebelling against traditions or performing poorly.
6/15/2018

22. Traditional Economy: Advantages
Tend to provide economic security
Sustainable economy because they tend to grow very slowly
Can achieve relative equitable distribution of goods and services
6/15/2018

23. Traditional Economies: Disadvantages
Rarely achieve goals of economic freedom, economic growth, high standard of living.
Equity can be a problem if standards of the community are unfavorable to certain groups, such as women.
Some societies resist the adoption of new technology, such as electricity or the internet that contribute to education, health, and comfort.
Freedom could be limited because your future is predetermined based on your family or the judgment of the village elders.
6/15/2018

24. Command Economy: Incentives
come from the government.
Rewards and punishments given to the managers of factories, transportation systems, schools and other key enterprises.
6/15/2018

25. Command Economies: Advantages
economic security, central planners guarantee employment by assigning every person to a job that is part of the plan.
Basic needs, such as housing, education, and medical care provided by government free of charge.
Ability to adjust rapidly to changing circumstances by shift resources quickly
6/15/2018

26. Command Economy: Disadvantages
Economic freedom is sacrificed - People cannot start a business or change jobs in a command economy without government permission, if at all.
The standard of living is low
few incentives to work hard, innovate, or use resources efficiently
weak economic growth
Often shortage of consumer goods and rationing
Low Equity -High officials, top bureaucrats, and military officers typically fare better in a command system
6/15/2018

27. Market Economies
Market economy: most key economic decisions are made by business owners and consumers.
Business owners are free to produce and how to produce it, and business sell their products to whoever chooses to buy them.
The United States is a primary example of a market economy. Along with Canada, England, France, Germany, Japan, and Singapore.
6/15/2018

28. Market Economy: Incentives
Gains and losses that follow from the economic choices of business owners and consumers.
Any exchange in a market economy must benefit both sides or it wouldn't be carried out voluntarily.
6/15/2018

29. Market Economy: Advantages
Higher Living Standards due to:
Availability of desirable goods
Efficient production methods
Rapid Economic Growth
They encourage discovery and innovation.
More Economic Freedom
People are free to make their own choice about where to work and what to buy with the money they earn
Businesses can decide what to produce and how to produce it.
6/15/2018

30. Market Economies: Disadvantages
Equity
no central plans or strong traditions to ensure everyone has a job.
Resource conservation
When individuals decide how to use resources, they may overlook the effects of their decisions on the environment and on future generations.
Corruption and Unethical Behavior
Example: drug companies to rush new medications to the market without adequate testing.
* To avoid problems such as these, governments can intervene with laws for the protection of society Mixed Economy
6/15/2018

31. Mixed Economy
Combines a market economy with significant government involvement and elements of tradition.
All modern economies are mixed economies.
Example: in the U.S. government agencies make key decision about public services including national defense, education, and police protection. Also, government regulates activities that could present harm to society if left unchecked,
6/15/2018

32. ECONOMIC SYSTEMS
Discussion: Which system seems the most efficient? Why?

33. What to Produce
How to Produce
For Whom to Produce
Economic System
produce what the government or central planner says it will produce. 
produce using whatever methods the government or central planner says it will use 
distribute the goods and services to whomever the government says should get it. 
goods and services it has produced for generations based on what the ancestors produced. 
same production methods used in the past from generation to generation. 
Goods and services are distributed using the methods used by past generations. 
Firms will produce what they believe consumers will want to buy. 
Firms produce goods and services using methods to result in the most profit. 
Individuals and firms in the society who are willing and able to pay the price of the good or service 
firms produce what consumers want to buy, but govt may restrict production of certain goods or produce public goods. 
Firms produce goods and services using methods to result in the most profit, but the government may tax firm profits or mandate production processes to minimize harm to the public
Individuals and firms in the society who are willing and able to pay the price of the good or service,  but the Govt may restrict access to some goods or services to certain people, or may produce public goods for certain people.
ECONOMIC SYSTEMS
Command Economy
Traditional Economy
Market Economy
Discussion: Which system seems the most efficient? Why?
Mixed
Economy

34. MODULE 5 REVIEW What is… A. Economic system? B. Traditional economy?
C. Incentive?
D. Command economy?
E. Communism?
F. Socialism?
G. Rationing?
H. Market economy?
I. Capitalist system?
J. Free- enterprise system?
K. Mixed economy?
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

35. MODULE 6: The Modern Market Economy
KEY IDEA:
In modern market economies, government participation can support market exchanges and improve economic performance.
OBJECTIVES:
To explain the relationship among households, firms, and markets in a market economy.
To explain the government’s role in a market economy.
To describe how the government fits into the circular flow model of the economy
Have the class brainstorm their families involvement in the economy as both workers and consumers. Then have students think of how firms both demand labor and supply goods and services. This is the circular flow model.

36. HOUSEHOLDS, FIRMS, AND MARKETS
A household consists of an individual or a group of people who live together and share income, such as you and your family.
1. Households purchase
goods and services from businesses.
2. Households provide land, labor, capital, and entrepreneurship (resources) from which goods and services are produced.
This is a good place to mention that households DEMAND goods and services and SUPPLY land, labor and capital.

37. HOUSEHOLDS, FIRMS, AND MARKETS
A firm is a privately owned organization that produces goods or services and sells them to others.
This is a good place to mention that firms DEMAND land, labor and capital and SUPPLY goods and services.

38. THE SIMPLE CIRCULAR FLOW
Have the students identify the difference between the clockwise flow of money and the counter-clockwise flow of goods.

39. THE SIMPLE CIRCULAR FLOW
Product markets
are where goods and services are exchanged for money.
Again focus on the counter clockwise and clockwise flow.
Be sure to address the product market function of goods and services exchanged for money payments to firms. The Factor market is where the resources of land, labor, capital and entrepreneurship are exchanged for money payment to households.
Factor markets
are where resources are
exchanged for money.

40. GOVERNMENT’S ROLE IN A MARKET ECONOMY
1. A government can establish and enforce rules that improve market performance.
2. A government can provide important goods and services that private individuals tend not to purchase.
3. A government can help improve economic security, equity, and sustainability.
Recall for students that the term “government” could mean federal, state or local governments.
Discussion:
What are some goods and services that the government provides? Try to encourage goods and services from each of of the categories on the slide
Why does government provide these goods and services?
Why are they not provided by private sector firms?

41. GOVERNMENT IN THE CIRCULAR FLOW
Focus on the flow of money to the government. Ask the students what taxes they pay and which government agency collects and spends the revenue.

42. Government in the Circular Flow
Discuss with the students their view of the role of government within the economy.
Make sure to point out the clockwise and counter-clockwise flow in the model

43. Module 6 Review What is… A. Household? B. Firm?
C. Circular flow diagram?
D. Product market?
E. Factor market?
This is a good place to use the online quiz and other materials online.
Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.