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Economic Systems and Decision Making

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Presentation on theme: "Economic Systems and Decision Making"— Presentation transcript:

1 Economic Systems and Decision Making
Chapter Two

2 Economic Systems What would your business have to do conduct business in a foreign country? Take a few minutes to discuss and share

3 Economic Systems What is an Economic System? Traditional Command
All societies have them. An organized way of providing for the wants and needs of the people. Four kinds: Traditional Command Market Mixed

4 Traditional -All economic activity stems from ritual, habit, or custom. -Roles are defined by customs of elders and ancestors. -All know their place. Command -Central authority makes the major decisions about what, how, and for whom to produce. -Headed by any leader -Gov’t makes all econ. Decisions – what to make -Cannot own homes, limited freedoms,. . Mixed -When all three types are combined. -Socialism – mixed economic and political system. -Communism – political/economic system where all property is collectively owned. Market -People make decisions in their own best interest. -Great deal of freedom. -Based on capitalism. -Businesses are free to find the best production methods.

5 Economic System Advantages Disadvantages Traditional Economy Command Economy Market Economy Mixed Economy

6 Economic System Advantages Disadvantages
Traditional Economy -All know your role i.e. hunter, gatherer, farmer, etc. -Know who you are producing for -Discourages new ideas/ways of doing things -Economic stagnation – no progress, lower standard of living Command Economy -Can change direction drastically -Low cost health and human services – trade off? -Ignore basic wants and needs of consumers -just filling quotas vs. quality product -requires a large decision bureaucracy Market Economy -Individual freedom -Adjusts to change -Little gov’t interference -Decision making left up to the individual -Variety of goods and services/satisfaction -Does not provide for everyone -May not provide enough of the basic services -High degree of uncertainty among employees. Mixed Economy -Doesn’t leave anyone out -Higher costs, services limited, low quality

7 Evaluating Economic Performance
Economic and Social Goals In your groups, discuss how important it is for you to set goals in your life. Why?

8 Evaluating Economic Performance
Economic and Social Goals We all share broad economic and social goals All can be categorized in seven economic and social goals

9 Evaluating Economic Performance
Goals: Economic Freedom Cornerstone of American society We place a high value on our freedom to make economic decisions Occupations, employees, uses for our money

10

11 Evaluating Economic Performance
Goals: Economic Efficiency Resources are scarce If wasted, fewer goods and services can be produced which leads to fewer needs and wants being satisfied

12 Evaluating Economic Performance
Goals: Economic Equity As Americans, we believe in fairness Equal pay for equal work??? Minimum Wage – Why do we have it? Illegal advertising Lemon laws

13 Evaluating Economic Performance
Goals: Economic Security Protection from lay-offs or illness, how? Social Security – Discuss how you think it works… Medicare – 65 or older

14 Evaluating Economic Performance
Goals: Full Employment We all want to work Cannot support ourselves/families without

15 Evaluating Economic Performance
Goals: Price Stability Inflation – more money needed Everything increases, interest rates, goods/services Discourages business activity Fixed income

16 Evaluating Economic Performance
Goals: Economic Growth We all have the American dream…better car, house, job Growth enables more people to have more goods and services Population growth makes this a necessity!

17 Evaluating Economic Performance
Resolving Trade-Offs Among Goals Economic system is flexible Allows for choices, and accommodates compromises Question – What are some other ways that Americans have modified the free enterprise economy? Gov’t provides social goods - Schools, police, fire protection Products such as cigarettes and alcohol – age restrictions

18 American Free Enterprise
The U.S. economy is based on free enterprise Resources are privately owned, and competition is allowed to flourish without much government interference Capitalism/free enterprise Capitalism – private ownership of resources Free enterprise – unhindered use of privately owned resources to earn profits

19 American Free Enterprise
Characteristics of Free Enterprise Capitalism Economic Freedom Individual – Can choose occupation, employer, job location Business Hire best workers Free to produce products that are most profitable, set prices Free to risk success or failure

20 American Free Enterprise
Characteristics of Free Enterprise Capitalism Economic Freedom Consumer decisions Classified as: Habitual Impulsive Rational As a group, come up with three examples each Then decide which is the most responsible

21 American Free Enterprise
Characteristics of Free Enterprise Capitalism Voluntary Exchange Buyers and sellers freely and willingly engaging in market transactions Buyer = believes product > money given Seller = believes money > product given

22 American Free Enterprise
Characteristics of Free Enterprise Capitalism Private Property Rights Ability to own and control their possessions as they wish Gives people the incentive to work, save, and invest

23 American Free Enterprise
Characteristics of Free Enterprise Capitalism Profit Motive People are free to risk any part of their wealth in a business venture What is profit/Profit Motive? When you are better off financially at the end of a specific period then you were at the beginning Profit motive is the incentive that encourages people and organizations to improve their material well being Both are very important to the well being of a free enterprise system

24 American Free Enterprise
Characteristics of Free Enterprise Capitalism Competition Capitalism thrives on competition, the struggle among sellers to attract competition Free enterprise capitalism allows competition to flourish Benefits both producers and consumers, How?

25 American Free Enterprise
The Role of the Entrepreneur, Consumer, and Government In your groups, describe the roles of the three aforementioned groups Copy chart into your notes Use your books to complete the chart Write all information into your notes

26 Category Specific Role
Entrepreneur Consumer Government Protector – Provider – Regulator – Consumer -

27 American Free Enterprise
Modified Free Enterprise Sometimes referred to as a mixed economy Allows for some government intervention/regulation National defense System of laws and justice


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