1. Economic Systems
Chapter 2

2. Terms to know Economic system Factor payment Profit Safety net
Standard of living
Innovation

3. What if?
The government limited your choices of cereal and soap you had available?
What if you only had access to goods that you and your neighbors were able to grow or make yourselves?
These are examples of different economic systems

4. Three key economic questions
What goods and services should be produced?
How should the goods and services be produced?
Who consumes the goods and services?

5. The way society answers the three economic questions defines its economic system
Economic system is the structure of methods and principles a society uses to produce an distribute goods and services

6. What goods and services should be produced?
Which consumer goods should we produce?
How much of our resources should we devote to national defense, education, consumer goods?
Because resources are limited, each decision that a society makes about what to produce comes at an opportunity cost

7. How should goods and services be produced?
Although there are many ways to produced goods and services, all require land, labor, and capital
These factors of production can be combined in different ways

8. Who consumes goods and services?
Societies must decide how goods and services are consumed
Determined by how societies distribute income

9. Economic goals and societal values
Different societies answer the three different economic questions based on importance they attach to various economic goals
These goals include: efficiency, freedom, security, equity, and growth

10. Economic Efficiency
If a society can accurately assess what its people need an want, it increases its economic efficiency
The goal of reducing waste also involves the second and third economic questions
An economy that can deliver the right goods in the right quantity to the right people at the right price is not efficient

11. Economic freedom
Most people value the opportunity to make their own choices
People face limitations on their economic freedoms
Economic freedoms include we buy what we can pay for, to seek work where we want, to own property, to become entrepreneurs

12. Economic security
Economic systems seek to reassure people that goods and services will be available when needed and that they can count on receiving expected payments on time
Security of knowing that help is available if we need it
Layoffs
Injuries
Natural disasters

13. Economic equity
Fairness is an economic goal that is defined differently in different societies
Should one’s consumption depend on how much one produces?
Should everyone get the same share of goods and services nation produces?
How much should society provide for those who are unable or unwilling to produce?

14. Economic growth
A nation’s economy must grow with its population so it can provide jobs for the new people joining the workforce
A nation’s economy must grow if people are going to have more income
Improve standard of living
Innovation plays a huge role in economic growth

15. Goals in conflict Society may value other goals
Environmental protection
Full employment
Protecting national industries
To protect the environment, a government may impose regulations on manufacturers which curb economic freedom
All nations must prioritize their economic goals, each comes with some kind of trade-off

16. Types of economies Traditional economy Command Economy Market Economy
Mixed economy