1. Economic System and Decision Making Chapter 2

2. TRADITIONAL Allocation of scarce resources, and nearly all other economic activity, stems from ritual, habit, custom.

3. COMMMAND ECONOMY A central authority makes most of the economic decisions. What? How? Whom?

4. Market Economies People and firms act in their own best interest to answer What, How, Whom.

5. Sec. 2 Evaluating Economic Performance 7 Main Economic and Social Goals 1. Economic Freedom 2.Economic Efficiency 3. Economic Equity 4. Economic Security 5. Full Employment 6. Price Stability 7. Economic Growth

6. Sec. 3 Capitalism and Economic Freedom Characteristics of Free Enterprise and Capitalism Economic Freedom (money decisions) Competition Voluntary Exchange (buyers/sellers make market transactions) Private Property Rights (control of possessions) Profit Motive (improve well-being by making money)

7. What is the role of an entrepreneur? Manage land, capital, and labor = PROFIT Rewards in a free market economy: 1.When profits exceed the cost of business, the business grows. 2.Workers are rewarded with more incentives. 3.Consumers are rewarded with new and better products

8. Role of the consumer  Consumer sovereignty- “ruler of the market” “the consumer is always right”

9. Role of Government Protector: enforce laws against false and misleading advertising, unsafe food and drugs, environmental hazard, and unsafe cars. Employers can’t discriminate against race, age, religion, gender. Provider and Consumer: Provider: Nat’l gov supplies defense service. State gov provides education and public welfare. Consumer: buys products from private companies

10. Regulator: oversees interstate commerce, communication, and industries such as banking, and nuclear power. Regulate business w/ building and zoning permits. Automobile registrations and insurance rates. Promoter of National Goals: Mixed economy, or modified private enterprise economy. People carry on their economic decisions freely, but are subject to some government intervention.