1. Economic Systems and Decision-Making
Chapter 3:
Economic Systems and
Decision-Making

2. Economic Systems Remember the three basic questions:
1. What to produce?
2. How to produce?
3. For whom to produce?

3. Traditional Economies
How do they answer the three basic questions?
What are some advantages and disadvantages?
Examples

4. Command Economies (Ancient and Modern)
How do they answer the three basic questions?
What are some advantages and disadvantages?
Examples

5. Market Economies How do they answer the three basic questions?
What are some advantages and disadvantages?
Examples

6. Mixed Economies
All modern economies have elements of all three systems – traditional, command and market
Examples of each in the U.S. economy
“Modified private enterprise economy”

7. The “Pillars” of Free-Enterprise

8. Private Property Rights
Private ownership of economic resources
Limited government interference
Businesses are free to compete
Businesses have an incentive to be efficient and successful

9. Economic Freedom Consumers choose what to buy
Producers choose what to sell
All exchange is voluntary

10. Profit Motive Encourages efficiency
Encourages innovation and invention
Leads to economic growth and a higher standard of living

11. Competition Leads to greater efficiency
Results in lower prices and increased quality
Leads to greater consumer choice

12. If one of the pillars should fall……
All four characteristics are necessary for a flourishing free-enterprise economy
This gives the government a role in the economy to ensure the four pillars remain standing

13. The Players in the Game The Entrepreneur Essential for Economic Growth
Inventors/Innovators
Risk-Takers
If successful:
Create more and better jobs
Leads to more and better pay
Increase competition
Creates more and better products at lower prices

14. The Players in the Game The Consumer “Consumer Sovereignty”
Holds the power
Determines what goods get produced
“Dollar Votes”
Every purchase is a vote for a good/service

15. The Players in the Game The Government Protector Provider Consumer
Against discrimination, unsafe products, misleading advertising, unsafe work conditions
Provider
Roads, schools, libraries, social services
Consumer
Purchases goods and services from the private sector, employer of resources
Regulator
Regulatory agencies: FDA, FCC, etc.