1. Economic Systems
Chapter 2

2. Section 1: Economic System
Method used by a society to produce and distribute goods and services.

3. Three Key Economic Questions:
What good and services should be produced?
How should these goods and services be produced?
Who consumes the good and services?

4. Economic Goals Economic Efficiency Economic Freedom
Making the most of resources
Economic Freedom
Freedom from government intervention in the production and distribution of goods and services.

5. Economic Security and Predictability
Assurance goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster.
Economic Equity
Fair Distribution of Wealth

6. Economic Growth and Innovation
Innovation leads to economic growth, and economic growth leads to a higher standard of living.
Other Goals
Societies pursue additional goals.

7. The Four Economic Systems

8. 1.) Traditional Economy
Relies on habit, custom, or ritual to decide questions of production and consumption of goods and services.

9. 2.) Market Economy (Free Market, Capitalism)
Decisions on production are consumption of goods and services are based on voluntary exchange in markets.

10. 3.) Centrally Planned Economy (Command)
Central Government makes all decisions on the production and consumption of goods and services.

11. 4.) Mixed Economy
Combines traditional and the free market with limited government involvement.

12. Section 2 Market Specialization
Arrangement allowing buyers and sellers to exchange things
Specialization
The concentration of the production efforts of individuals and firms on a limited number of activities.

13. Free Market Economy Based on voluntary exchange
Individuals and businesses own the factors of production, make what they want and buy what they want.

14. Circular Flow of the Economy
Household
Person or groups of people living in the same residence.
Firm
Organization using resources to produce a product which it then sells.

15. Factor Market Product Market
Market in which firms purchase the factors of production from households
Product Market
Households purchased the goods and services produced by firms.

16. Adam Smith – The Wealth of Nations
Invisible Hand
Describes the self regulating nature of the market place.

17. Self-Interest Incentive One’s own personal gain.
Expectation encourage people to behave in a certain way.

18. Competition Laissez Fair
Struggle among producers for the dollars of the consumer
Laissez Fair
Belief that the government should not intervene in the market place.

19. Advantages of the Free Market System
Economic Efficiency
Producers make what consumers want, when they want it, and generally at the price they are willing to pay
Economic Freedom

20. Economic Growth Consumer Sovereignty Competition encourages innovation
Consumers decide what is produced

21. Section 3 Centrally Planned Economy Authoritarian Socialism
Requiring strict obedience to an authority, such as a dictator
Socialism
Economic system which evenly distributes wealth through society

22. Communism
Political system with a centrally planned economy in which all decisions are made by the central government
Karl Marx
Wrote the Communist Manifesto

23. Mixed Economies Public Goods and Services Welfare Cash Transfers
Goods and services paid for and shared by society, which would be too expensive for the individual
Welfare
Government Aid to the Poor
Cash Transfers
Direct payment of money to the eligible poor

24. What is Welfare?

26. Causation and Correlation
One event causes the other
Correlation
Two events are linked or connected in some way

27. Average Families on Welfare
Median Real Welfare Benefit for Family of 3 (Adjusted for Inflation)
Families Receiving Welfare
1970
817
1909
1975
752
3357
1980
601
3642
1985
531
3692
1990
480
3974
1995
426
4879
2000
421
2256

28. A 2012 USDA report on the program says that, in fiscal year 2011, SNAP provided on average $134 per person to 44.7 million individuals in 21.1 million households each month. 

29. Access to healthy food is a fundamental
building block for a productive life.
While federal food assistance benefits are critical to enabling low-income families to buy food, the lack of access to healthy, fresh food results in poor health outcomes and increases the risk of diet-related chronic illness. Nationwide, there are more than 46 million recipients of Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps) benefits receiving over $65 billion in federal food assistance. In Michigan, there are 1.9 million SNAP recipients, over 19% of the state’s population and considerably higher than the 12.9% national average. In Michigan, SNAP benefits are administered via Electronic Benefits Transfer (EBT) on the Michigan Bridge Card.

30. Externality
Economic side effect if a good or service generating benefits or costs to someone other than the person deciding how much to produce or consume