1. Tuesday, March 17 Welcome back! Happy St. Patrick’s Day!  Bellringer:
What is the difference between trade-offs and opportunity costs? Give an example.

2. Making decisions
Trade-off: an alternative that we sacrifice when we make a decision
Cost-benefit analysis: What benefit am I getting for the cost?
Opportunity cost: the most desirable alternative given up as the result of a decision

3. Economic systems
Remember the main problem in economics?

4. Main problem in economics
UNLIMITED WANTS
LIMITED RESOURCES
SCARCITY
CHOICES
Three basic questions
that all economic
systems must answer
WHAT?
HOW?
FOR WHOM?

5. Economic systems Remember the main problem in economics?
SCARCITY: Limited resources, unlimited wants
Scarcity forces societies and nations to answer some hard economic questions
People with different values came up with different solutions based on those values
Economic system: The method used by a society to produce and distribute goods and services

6. Main problem in economics
UNLIMITED WANTS
LIMITED RESOURCES
SCARCITY
CHOICES
Three basic questions
that all economic
systems must answer
WHAT?
HOW?
FOR WHOM?

7. Economic systems
The three key economic questions every society must answer:
WHAT goods and services should be produced?
National defense
Education
Public health and welfare
Consumer goods
Remember: Each decision comes at an opportunity cost!

8. Economic systems
The three key economic questions every society must answer:
HOW should those goods and services be produced?
Electricity: Oil? Solar power? Nuclear power?
Education: Class sizes of 20 or 50?
Food: Large corporate farms or small family farms?
Countless possible combinations of land, labor, and capital

9. Economic systems
The three key economic questions every society must answer:
WHO consumes these goods and services?
How do we distribute the available goods and services?
Who gets to consume which goods and services?
Factor payments: the income people receive for supplying factors of production, such as land, labor, or capital

10. Economic goals and societal values
As they answer these three key questions, societies pursue some economic goals at the expense of others
In doing so, they signal what they value

11. Economic goals Economic efficiency Other goals Economic freedom
Economic growth and innovation
Economic security and predictability
Economic equity

12. 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
How free are you to choose to produce, purchase, and possess certain items?

13. Economic goals Economic security and predictability
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
Safety net: government programs that protect people experiencing unfavorable economic conditions, like injury, layoffs, natural disasters, etc.
Example:

14. Economic goals Economic equity Fair distribution of wealth
What is “fair”?
Should everyone get the same amount, or should consumption depend on production?
How much should society provide for people who are unwilling or unable to produce?
Equal pay for equal work sounds good, but …
Police officers vs. lawyers?
Teachers vs. soldiers?

15. Higher standard of living
Economic goals
Economic growth and innovation
A nation’s economy must grow for that nation to improve its standard of living, or level of economic prosperity!
Innovation – new products or ideas – is key to this process!
Innovation
Economic growth
Higher standard of living

16. Economic goals Other goals Societies may value other goals, too:
Environmental protection
Full employment
Universal medical care
They can incorporate these other goals, but only with some kind of economic trade-off!

17. Four types of economic systems
Traditional economy: economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services
Family-based, work divided along gender lines
Small, close communities
Vulnerable to environmental disaster
Slow to adopt new technology
Most lack modern conveniences and have a low standard of living

18. Four types of economic systems
Market economy: Economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets
Decisions are made by individuals
Individuals choices determine what gets made, how it’s made, and who consumes what’s made
Also called free markets, or capitalism

19. Four types of economic systems
Centrally planned economy: economic system in which the central government makes all decisions on the production and consumption of goods and services
Command economy: economic system in which a central authority is in command of the economy; a centrally planned economy
(They basically mean the same thing)

20. Four types of economic systems
Mixed economy: A market-based economic system with limited government involvement
Most modern economies are mixed economies