1. Chapter 2 – Economic Systems Section 1: 3 Economic Questions Section 1: 3 Economic Questions Section 1: Section 1: Section 2: Market Economy Section 2: Market Economy Section 2: Section 2: Section 3: Centrally Planned Economy Section 3: Centrally Planned Economy Section 3: Section 3: Section 4: Modern Economies Section 4: Modern Economies Section 4: Section 4:

2. Economic Systems A method used to produce and distribute goods and services. A method used to produce and distribute goods and services.

3. – What goods and services should be produced? – How should these goods and services be produced? – Who consumes these goods and services? 3 Basic Economic Questions

4. Economic Goals and Values Economic Efficiency – Making the most of resources. Economic Freedom - Freedom from government intervention in the production and distribution of goods and services Economic Security - Assurance that goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster

5. Economic equity - Fair distribution of wealth, Does America have economic equity? Economic equity - Fair distribution of wealth, Does America have economic equity? Economic growth - Innovation leads to economic growth, and economic growth leads to a higher standard of living. Economic growth - Innovation leads to economic growth, and economic growth leads to a higher standard of living. Other goals - Societies pursue additional goals, such as environmental protection. Other goals - Societies pursue additional goals, such as environmental protection. Economic Goals and Values

6. Traditional economies rely on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it. Traditional economies rely on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it. In a centrally planned economy the central government makes all decisions about the production and consumption of goods and services. In a centrally planned economy the central government makes all decisions about the production and consumption of goods and services. In a market economy economic decisions are made by individuals and are based on exchange, or trade. In a market economy economic decisions are made by individuals and are based on exchange, or trade. Mixed economies are systems that combine tradition and the free market with limited government intervention. Mixed economies are systems that combine tradition and the free market with limited government intervention. Four Economic Systems

7. Jumpstart Assignment Describe the following political cartoon

8. Jumpstart Assignment Describe the

9. Today’s Agenda Jumpstart Jumpstart Notes: Ch. 2, Sec. 2 and 3 Notes: Ch. 2, Sec. 2 and 3 Video: Communism is bad! Video: Communism is bad! Debating the Stimulus Debating the Stimulus

10. Why do markets exist? b/c none of us can make everything we need b/c none of us can make everything we need A market is an arrangement that allows buyers and sellers to exchange goods and services. A market is an arrangement that allows buyers and sellers to exchange goods and services. Specialization is the concentration of the productive efforts of individuals and firms on a limited number of activities. Specialization is the concentration of the productive efforts of individuals and firms on a limited number of activities.

11. Free Market – Circular Flow monetary flow physical flow monetary flow physical flow Circular Flow Diagram of a Market Economy Households Firms

12. Self-Regulating Market (Adam Smith) Self-interest is the motivating force in the free market. Self-interest is the motivating force in the free market. Producers in a free market struggle for the dollars of consumers. This is known as competition, and is the regulating force of the free market. Producers in a free market struggle for the dollars of consumers. This is known as competition, and is the regulating force of the free market. The interaction of buyers and sellers, motivated by self-interest and regulated by competition, all happens without a central plan. This phenomenon is called “the invisible hand of the marketplace.” The interaction of buyers and sellers, motivated by self-interest and regulated by competition, all happens without a central plan. This phenomenon is called “the invisible hand of the marketplace.”

13. Centrally Planned Economies Socialism is a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society. Socialism is a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society. Communism is a political system characterized by a centrally planned economy with all (most)economic and political power resting in the hands of the government (Karl Marx) Communism is a political system characterized by a centrally planned economy with all (most)economic and political power resting in the hands of the government (Karl Marx)

14. Communism = bad Capitalism = good

15. Homework: Answer the following essay question. Left Side: Why is socialism a preferable economic system over capitalism? Left Side: Why is socialism a preferable economic system over capitalism? Right Side: Why is capitalism a preferable economic system over socialism? Right Side: Why is capitalism a preferable economic system over socialism?

16. Jumpstart Assignment What strengths and weaknesses are there to a centrally planned economy? What strengths and weaknesses are there to a centrally planned economy?

17. Modern Economies What is wrong with a pure market economy? What is wrong with a pure market economy? Many early economists believed in a laissez faire philosophy… or a “hands off” approach to the market Many early economists believed in a laissez faire philosophy… or a “hands off” approach to the market Over time, society’s needs and wants became such that government rules became necessary Over time, society’s needs and wants became such that government rules became necessary

18. monetary flow physical flow monetary flow physical flow Circular Flow Diagram of a Mixed Economy Households Firms Product market Factor market Government expenditures government- owned factors taxes government purchases Government’s Role in a Mixed Economy In a mixed economy, The government purchases land, labor, and capital from households in the factor market, and The government purchases land, labor, and capital from households in the factor market, and Purchases goods and services in the product market. Purchases goods and services in the product market.

19. Continuum of Mixed Economies Centrally plannedFree market Source: 1999 Index of Economic Freedom, Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick Iran North Korea Cuba China RussiaGreecePeruUnited States South AfricaFranceUnited Kingdom BotswanaCanadaSingapore Hong Kong Comparing Mixed Economies An economic system that permits the conduct of business with minimal government intervention is called free enterprise. An economic system that permits the conduct of business with minimal government intervention is called free enterprise.

20. Island Game Take a good look around, because these are the people with whom you have just been shipwrecked on a distant uncharted island. As far as you know, you are the only survivors of global catastrophe and it is up to you to develop a new society. This society should meet your needs, as you define them, and it should avoid the mistakes of "the old ones", those who died in the recent tragedy. Use the questions provided to guide your discussion of how you will set up this new society. Record your answers on a separate sheet of paper headed by the name you have given to the island. This is a beautiful island. It is tropical (average temperature 80°F), it has many sources of food (fruit trees, fish, land for agriculture), and it has a steady wind from the West of about 15 m.p.h.. Remember, this is not a vacation, you have work to do.. so get to it !

21. Island Roles Interrogator Ask questions one at a time. Keep group moving along and on schedule. Interrogator Ask questions one at a time. Keep group moving along and on schedule. Recorder Record any group response to each question. Recorder Record any group response to each question. Group Make sure answers do not conflict with one another and that they are Conscience consistent with economic plan. Ask questions to help group develop more specific responses. Group Make sure answers do not conflict with one another and that they are Conscience consistent with economic plan. Ask questions to help group develop more specific responses. Map Specialist Keep others aware of geography and natural resources of island to help group develop a realistic economy. Map Specialist Keep others aware of geography and natural resources of island to help group develop a realistic economy.