1. Splash Screen

2. Section 1: Economic Systems Section 2: Evaluating Economic Performance
Chapter Introduction
Section 1: Economic Systems
Section 2: Evaluating Economic Performance
Section 3: American Free Enterprise
Visual Summary
Chapter Menu

3. Every society has an economic system to allocate goods and services.
Chapter Intro 2

4. Section Preview
In this section, you will learn about the different types of economic systems that govern WHAT goods and services to produce, HOW to produce them, and FOR WHOM to produce them.
Section 1-Preview

5. Economic Systems
All societies use an economic system to provide for needs and wants of their people.
Three major economic systems exist:
Traditional
Command
Market
Comparing Economic Systems
Section 1

6. Economic Systems (cont.)
Most economies combine elements of the three.
Comparing Economic Systems
Section 1

7. Traditional Economies
Traditional societies use ritual, habit, or customs to answer the basic questions of WHAT, HOW, and FOR WHOM to produce.
Section 1

8. Traditional Economies (cont.)
A traditional economy—use of scarce resources and economic activity is based on habit or custom.
Section 1

9. Traditional Economies (cont.)
Advantages
Everyone knows which role to play.
Little uncertainty on what or how to produce.
Customs and traditions determine who is provided for.
Section 1

10. Traditional Economies (cont.)
Disadvantages
Individuals generally not free to make decisions
New ideas discouraged, leading to stagnation and a lower standard of living
Strict rules defined by elders and ancestors
Section 1

11. Command Economies
Command economies rely on a central authority to make most of the economic decisions.
Section 1

12. Command Economies (cont.)
A central authority makes the major decisions in a command economy.
Section 1

13. Command Economies (cont.)
Advantages
Can change direction drastically through emphasizing/allocation
Health and public services available to everyone at little or no cost
Section 1

14. Command Economies (cont.)
Disadvantages
Basic wants and needs of consumers are ignored.
Economies tend to be unproductive, not producing a good product.
Large decision-making bureaucracy lacks flexibility.
Section 1

15. Command Economies (cont.)
Severely limits private property rights
Individual freedom and initiative are limited.
Section 1

16. Market Economies
In a market economy, consumers and businesses jointly answer the questions of WHAT, HOW, and FOR WHOM to produce.
Section 1

17. Market Economies (cont.)
A market economy allows people to make decisions in their own best interest.
Buyers and sellers exchange goods and services in a market.
Market economies are based on capitalism.
Capitalism means that the factors of production are privately owned.
Section 1

18. Market Economies (cont.)
Advantages
High degree of individual freedom
Adjusts gradually to change over time
Small degree of government interference
Decision making is decentralized
Large variety of goods and services
High degree of consumer satisfaction
Section 1

19. Market Economies (cont.)
Disadvantages
Not everyone is provided for
May not provide enough of some basic goods and services
High degree of uncertainty for workers and employers
Section 1

20. Mixed Economies
Most economies in the world today feature some mix of traditional, command, and market economies.
Section 1

21. Mixed Economies (cont.)
Most economies in the real world are mixed economies.
When political systems are considered with economic systems, the picture gets more complicated.
An example is socialism and its extreme, communism.
The Spectrum of Mixed Economies
Section 1

22. Mixed Economies (cont.)
The type of political system in a mixed economy is less important than the way basic economic decisions are made.
The Spectrum of Mixed Economies
Section 1

23. Mixed Economies (cont.)
Advantages of a mixed economy
Provides assistance for some people who might otherwise be left out
In a democratic society, voters use electoral power to affect WHAT, HOW, and FOR WHOM decisions.
In a socialist society, FOR WHOM is addressed more directly by government.
Section 1

24. Mixed Economies (cont.)
Disadvantages
More services mean higher costs for citizens overall.
In socialist countries, availability of services may be limited or quality deteriorates over time.
Section 1

25. What is the main advantage of a mixed economy?
A. Ownership and control by government
B. More services are provided at a higher cost to citizens.
C. Provides assistance to people otherwise left out A B C
Section 1

26. Section 1-End

27. Section Preview
In this section, you will learn how economic freedom, economic security, and economic equity are related to the level of satisfaction people have with their economic systems.
Section 2-Preview

28. What happens when our economic system fails to achieve our goals?
A. Societies demand laws to modify system until needs are met.
B. The government collapses.
C. A command society results.
D. Inflation occurs. A B C D
Section 2

29. Economic and Social Goals
Americans share several major economic and social goals.
Section 2

30. Economic and Social Goals (cont.)
In the United States, there are seven major economic and social goals:
Economic freedom
Economic equity
The minimum wage was established on a national level.
Many states established lemon laws.
Section 2

31. Economic and Social Goals (cont.)
Economic security
Social Security was established for disabled or retired beneficiaries.
Full employment
Section 2

32. Economic and Social Goals (cont.)
Price stability
Inflation makes paying bills difficult for individuals on a fixed income.
High rates of inflation discourage business activity.
Economic growth
Section 2

33. Economic and Social Goals (cont.)
As our society evolves, more goals may become important to us.
Section 2

34. Resolving Trade-Offs Among Goals
Conflicts among goals can be solved by comparing the cost of a goal to its benefit.
Section 2

35. Resolving Trade-Offs Among Goals (cont.)
Individuals have different ideas on how to reach a goal or on the goal itself.
Our economic policies have opportunity costs and trade-offs.
Section 2

36. Resolving Trade-Offs Among Goals (cont.)
In many cases, trade-offs among goals are resolved when people compare their estimate of the costs to their estimate of the benefits and then vote for candidates accordingly.
The U.S. economy is flexible enough to allow choices, accommodate compromises, and still satisfy the majority of Americans.
Section 2

37. Section 2-End

38. Section Preview
In this section, you will learn how under capitalism the basic economic decisions of WHAT, HOW, and FOR WHOM to produce are made through the free interaction of individuals looking out for their own best interests.
Section 3-Preview

39. American Free Enterprise
In many parts of the world, capitalism has become the economic choice.
Capitalism allows private citizens to own and use the factors of production to generate profits.
The U.S. economy is based on free enterprise.
Characteristics of Free Enterprise Capitalism
Section 3

40. American Free Enterprise (cont.)
Capitalism and free enterprise are often used interchangeably, although meanings are different.
Capitalism stands for the private ownership of resources.
Free enterprise is the unhindered use of privately owned resources to earn profits.
Characteristics of Free Enterprise Capitalism
Section 3

41. Characteristics of Free Enterprise Capitalism
The American economy incorporates the main characteristics of a free enterprise economy.
Section 3

42. Characteristics of Free Enterprise Capitalism (cont.)
There are five major characteristics of a free enterprise economy:
Economic freedom
Voluntary exchange
Characteristics of Free Enterprise Capitalism
Section 3

43. Characteristics of Free Enterprise Capitalism (cont.)
Private property rights
Private property gives individuals incentive to work, save, and invest.
Profit motive
People are free to take risks to earn a profit.
Competition
Characteristics of Free Enterprise Capitalism
Section 3

44. The Role of the Entrepreneur
Entrepreneurs are the driving force of the free enterprise system.
Section 3

45. The Role of the Entrepreneur (cont.)
Entrepreneurs
Organize and manage land, capital, and labor to gain a profit
Are the people who start up new businesses
Want to “be their own boss”
Are willing to take risks
Section 3

46. The Role of the Entrepreneur (cont.)
Entrepreneurs are both the spark plug and the catalyst of the free enterprise economy.
Their search for profits leads to a chain of events that brings
New products
Greater competition
Section 3

47. The Role of the Entrepreneur (cont.)
More production
Higher quality
Lower prices for consumers
Profiles in Economics: Tony Hawk
Section 3

48. Why might an entrepreneur fail? A. Not enough capital
B. Poor product or service
C. Not aware of competition
D. All of the above A B C D
Section 3

49. The Role of the Consumer
The economy in the United States adapts to consumers’ wants.
Section 3

50. The Role of the Consumer (cont.)
Consumers ultimately determine which products are produced.
If consumers like a new product, producers are rewarded with profits.
Consumers not purchasing a product can cause a firm to go out of business.
Section 3

51. The Role of the Consumer (cont.)
The phrase “the customer is always right” recognizes consumer sovereignty.
Consumers are always looking for new ideas and products.
Section 3

52. Do you believe that “the customer is always right”? A. Always
B. Sometimes
C. Never A B C
Section 3

53. The Role of the Government
The economic role of the U.S. government is decided by its citizens.
Section 3

54. The Role of the Government (cont.)
The role of government stems from the desires, goals, and aspirations of its citizens.
Section 3

55. The Role of the Government (cont.)
Government has become
A protector
Provider
Regulator
Consumer
Section 3

56. The Role of the Government (cont.)
In general, the role of government in the economy is justified whenever the benefits outweigh the costs.
An unintended consequence of government’s role is the emergence of the mixed or modified free enterprise economy.
Section 3

57. The Role of the Government (cont.)
Some people prefer to have no government involvement in the economy—which is not possible.
Services like a national defense and a system of laws and justice cannot be supplied by the private sector alone.
Section 3

58. Section 3-End

59. Economic Systems Most countries have a mix of three different types of economic systems.
VS 1

60. Economic and Social Goals In the United States, we share several economic and social goals.
VS 2

61. Free Enterprise The U.S. economic system is based on the free enterprise system and is characterized by competition and private ownership of resources.
VS 3

62. VS-End

63. Figure 1

64. Figure 2

65. Figure 3

66. Tony Hawk (1968– )
professional athlete at age 14 and best skateboarder in the world by age 16
owner of a successful business empire based on resurgence of skateboarding and name recognition
Profile

67. Concepts Trans

68. DFS Trans 1

69. DFS Trans 2

70. DFS Trans 3

71. economic system 
organized way in which a society provides for the wants and needs of its people
Vocab1

72. traditional economy 
economic system in which the allocation of scarce resources and other economic activities are based on ritual, habit, or custom
Vocab2

73. command economy 
economic system characterized with a central authority that makes most of the major economic decisions
Vocab3

74. market economy 
economic system in which supply, demand, and the price system help people make decisions and allocate resources
Vocab4

75. market 
meeting place or mechanism that allows buyers and sellers to come together
Vocab5

76. capitalism 
economic system in which private citizens own and use the factors of production in order to generate profits
Vocab6

77. mixed economy
economic system that has some combination of traditional, command, and market economies
Vocab7

78. socialism
political and economic system in which the government owns and controls some factors of production
Vocab8

79. communism
economic and political system in which all factors of production are collectively owned and controlled by the state
Vocab9

80. stagnation 
lack of movement
Vocab10

81. allocate 
to assign
Vocab11

82. emphasizing 
stressing
Vocab12

83. minimum wage
lowest wage that can be paid to most workers
Vocab13

84. Social Security
federal program of disability and retirement benefits that covers most working people
Vocab14

85. inflation
rise in the general level of prices
Vocab15

86. fixed income income that does not increase even though prices go up
Vocab16

87. adverse 
unfavorable or harmful
Vocab17

88. accommodate 
to allow for
Vocab18

89. free enterprise
capitalistic economy in which competition is allowed to flourish with a minimum of government interference
Vocab19

90. voluntary exchange
act of buyers and sellers freely and willingly engaging in market transactions
Vocab20

91. private property rights
fundamental feature of capitalism that allows individuals to own and control their possessions as they wish
Vocab21

92. profit
extent to which persons or organizations are better off financially at the end of a period than they were at the beginning
Vocab22

93. profit motive
incentive that encourages people and organizations to improve their financial and material well-being
Vocab23

94. competition
the struggle among sellers to attract consumers
Vocab24

95. consumer sovereignty
role of consumer as ruler of the market when determining the types of goods and services produced
Vocab25

96. mixed or modified free enterprise economy
economy where people carry on their economic affairs freely but are subject to some government intervention and regulation
Vocab26

97. incentive 
something that motivates
Vocab27

98. catalyst something that stimulates activity among people or forces
Vocab28

99. regulator 
someone or something that controls activities
Vocab29

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