1. Explorations in Economics
Honors Economics – Mrs. Martini

2. Chapter 2: Comparing Economic Systems
Module 4: Using Resources to Achieve Economic Goals
Module 5: Types of Economic Systems
Module 6: The Modern Market Economy

3. MODULE 4: Using Resources to Achieve Economic Goals
KEY IDEA:
Every society must determine how to use its resources to achieve its economic goals.
OBJECTIVES:
To explain the three basic economic questions.
To identify five economic goals that societies pursue.
To describe tradeoffs made among the five goals.

4. THE THREE BASIC ECONOMIC QUESTIONS
1. What should be produced? 2. How should it be produced? 3. For whom should it be produced?

5. SOCIETY’S ECONOMIC GOALS
The standard of living is a measure of comfort in terms of the goods and services available.
Economic Goals:
Economic Growth
Efficiency
Equity
Economic Security
Economic Freedom
Explain how economic growth is measured—GDP;
Describe Efficiency-productive and allocative;
Discuss Equity-opportunity and income distribution;
Discuss Security=stability both privately and publicly;
Describe Freedom-choices for both careers and as a consumer.

6. 1. Economic Growth Increase in production over time.
No Economics Growth +  in Population = Lower Standard of Living
We measure economic growth using GDP
In the U.S. the Service industry tends to have high growth.

7. 2. Efficiency
Make some people better off without making others worse off
Don’t allocate resources to products unwanted (Meat in India)
Distribute goods and services to those who actually want them
Wasted resources = Inefficiency

8. 3. Equity (Controversial!)
Production and Distribution should be “fair and just”
Equality of Outcome – share the production outcome equally
Equality of Opportunity – everyone should have the same opportunities (i.e. Education, jobs)
Implies choice

9. 4. Economic Security Ability to support yourself and your family
Financial issues cause STRESS, DIVORCE, DEPRESSION!
Availability and quality of jobs
Social Safety Net – gov’t assistance for financial needs
S.S., Unemployment Insurance, Workers’ Comp

10. 5. Economic Freedom Freedom to make choices
What to buy, where to work, where you live etc.
Sustainability is important – keep this up for the long haul
Scale of Economic Freeedom

11. TRADEOFFS AMONG GOALS
Tradeoffs force societies to prioritize among economic goals. When the gains from change exceed the losses, it is possible to achieve an improved standard of living without neglecting the goals of equity and economic security.

12. MODULE 5: Types of Economic Systems
KEY IDEA:
A country’s economic system determines how well it can achieve each economic goal.
OBJECTIVES:
To explain what an economic system is and how incentives play a role.
To describe the features of a traditional economy, a command economy, a market economy, and a mixed economy.

13. ECONOMIC SYSTEMS AND INCENTIVES
An economic system is an organizational structure for addressing what, how, and for whom to produce.
An incentive is the prospect of a reward or punishment that influences a decision or motivates greater effort.
Discussion:
What incentives do you have to be a good student to get an education that helps you land a good job?

14. Types of Economic Systems
Traditional Economy
centers on families, clans, or tribes
decisions are based on customs and beliefs
Good of the group always comes before individual desires
Incentive to please

15. Traditional Economies
Advantages and Disadvantages
Advantages: little disagreement over goals, roles
methods of production, distribution determined by custom
Disadvantages: as result of resistance to change, less productive
do not use new methods; people not in jobs they are best suited for
low productivity results in low standard of living
Little economic freedom, economic growth, and equity for all

16. Types of Economic Systems cont.
Command Economy
(centrally planned economy) government makes economic decisions
determines what to produce; how to produce; who gets products
determines who is employed, work hours, pay scales
Wants of individual consumers rarely considered
Government owns means of production: resources and factories

17. Command Economies EXAMPLE: Socialism and Communism
Karl Marx influenced some societies to adopt command economies
socialism—government owns some of the factors of production
communism—no private property; little political freedom
Authoritarian system requires total obedience to government
communism is authoritarian

18. Command Economies Incentives – Gov’t reward or punishment
Do your job well = better stuff
Don’t = Demotion or PRISON if you try to go rogue!!
Advantages: Economic Security – guaranteed jobs
Can change production rapidly b/c the Gov’t is in charge
Disadvantages: Low standard of living, no private ownership of businesses
w/o permission
Too much military production
Shortages and Rationing
Low equality AND…
Unfortunate hairstyles 

19. MARKET ECONOMIES
In a market economy, most key economic decisions are made by business owners and consumers. In a capitalist system, most resources and businesses are privately owned. A free- enterprise system is an economic system based on private(individual or business) ownership of resources and voluntary exchange.

20. Types of Economic Systems cont.
Market Economy
driven by choices of consumers and producers
consumers spend money, go into business, sell their labor as they wish
producers decide how to use their resources to make the most money
Consumers, producers benefit each other when they act in self-interest

21. Fundamentals of a Market Economy
1: Private Property and Markets
2:Limited Government Involvement
Laissez faire—government should not interfere in economy
Capitalism—system having private ownership of factors of production
says producers will create products consumers demand
Actual market economies all have some government involvement

22. Fundamentals of a Market Economy
3: Voluntary Exchange in Markets
Voluntary exchange—traders believe they get more than they give up
4: Competition and Consumer Sovereignty
Consumer sovereignty—buyers choose products, control what is produced
Competition controls self-interested behavior
sellers offer low price or high value to please consumers, make profit

23. Fundamentals of a Market Economy
5: Specialization and Markets
Specialization—people concentrate their efforts in the activities they do best
encourages efficient use of resources
leads to higher-quality, lower-priced products

24. Impact of Market Economies
Advantages
Individuals free to make economic choices, pursue own work interests
Less government control means political freedom
Locally made decisions mean better use of resources, productivity
Profit motive ensures resources used efficiently, rewards hard work
resulting competition leads to higher-quality, more diverse products

25. Impact of Market Economies
Disadvantages
Pure market economy has no way to provide public goods and services
Does not give security to sick or aged
Businesses did not address problems caused by industrialization
Industrialized societies adopt some government control of economy

26. MIXED ECONOMIES
A mixed economy combines a market economy with significant government involvement and elements of tradition. Governments in market economies have expanded their roles in the pursuit of equity, economic security, and sustainability.

27. ECONOMIC SYSTEMS

28. MODULE 6: The Modern Market Economy
KEY IDEA:
In modern market economies, government participation can support market exchanges and improve economic performance.
OBJECTIVES:
To explain the relationship among households, firms, and markets in a market economy.
To explain the government’s role in a market economy.
To describe how the government fits into the circular flow model of the economy.
To describe the tradeoffs different countries make in designing social safety nets.

29. HOUSEHOLDS, FIRMS, AND MARKETS
A household consists of an individual or a group of people who live together and share income, such as you and your family.
1. Households purchase
goods and services from businesses.
2. Households provide land, labor, capital, and entrepreneurship (resources) from which goods and services are produced.
This is a good place to mention that households DEMAND goods and services and SUPPLY land, labor and capital.

30. HOUSEHOLDS, FIRMS, AND MARKETS
A firm is a privately owned organization that produces goods or services and sells them to others.
This is a good place to mention that firms DEMAND land, labor and capital and SUPPLY goods and services.

31. THE SIMPLE CIRCULAR FLOW
Identify the difference between the clockwise flow of money and the counter-clockwise flow of goods.

32. THE SIMPLE CIRCULAR FLOW
Product markets
are where goods and services are exchanged for money.
Again focus on the counter clockwise and clockwise flow.
Be sure to address the product market function of goods and services exchanged for money payments to firms. The Factor market is where the resources of land, labor, capital and entrepreneurship are exchanged for money payment to households.
Factor markets
are where resources are
exchanged for money.

33. GOVERNMENT’S ROLE IN A MARKET ECONOMY
1. A government can establish and enforce rules that improve market performance.
2. A government can provide important goods and services that private individuals tend not to purchase.
3. A government can help improve economic security, equity, and sustainability.

34. GOVERNMENT IN THE CIRCULAR FLOW
A public good is a good or service that can be consumed by many people at once and that other people can’t be prevented from using.
Focus on the flow of money to the government. Ask the students what taxes they pay and which government agency collects and spends the revenue.
Transfer payments
are expenditures for which the government receives no good, service, or resource in return.

35. Government in the Circular Flow
Make sure to point out the clockwise and counter-clockwise flow in the model

36. INTERNATIONAL PERSPECTIVES
Countries have to decide if they want a strong safety net or a weak one. More public goods and transfer payments tend to increase the tax rate.