2.  All people face Scarcity- too many wants and too few resources so…  Decisions must be made.  These decisions come down to Three Basic Economic Questions of scarcity:

3.  What goods and services will be produced? › What will the economy produce with the resources?  How will they be produced? › What methods will be used?  For Whom to produce – Who gets the goods and services?

4.  Economic system (economy) – an organized way of providing for the wants and needs of people. 1). Traditional 2). Command 3). Market 4. Mixed

5.  Economic activity is based on tradition with roles determined by previous generations.  Examples: › Medieval Europe › Various hunting tribes in Africa and northern Canada

6.  Everyone knows what their role is.  Life is generally predictable and stable.

7.  Discourages new ideas and new ways of doing things.  Lack of progress leads to a lower standard of living.

8.  Economic activity is planned out by the government, with people having little influence.  Examples: › Cuba › North Korea › Former Soviet Union

9.  Abolition of property rights  State seizure of transportation services  State seizure of communication services  Elimination of religion and traditional families.  State seizure of industry  Citizens are forced to work

10.  Allows an economy to change direction very quickly. › After Stalin’s first two Five Year Plans, Russia moved from a rural agricultural economy to an industrial economy.

11.  Little uncertainty as to who will do what.  No unemployment because the government gives everyone a job (whether it is needed or not). › Ayn Rand - Anthem

12.  Not designed to meet the wants of consumers. › Stalin’s Five Year Plan directed resources away from both agriculture and consumer goods. Shortages and waiting lines.  Provides strange incentives › Do just enough to meet quotas.

13.  No rewards for individual performance. › Tetris  No flexibility to handle problems. › Great Depression disrupted the USSR’s First Five Year Plan  Requires a large decision making agency. › Stalin’s Five Year Plans governed all economic activity in Russia…that’s a lot of paperwork!

14.  People and businesses act in their own best interests to answer the three basic economic questions.

15.  Lure of personal and financial gain leads consumers and businesses to interact in various markets.  Each person acts as they see fit in order to advance their own interests.

16.  “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” – Wealth of Nations, 1776

17.  Economy can adjust to change over time › Businesses can adapt to changing consumer tastes by creating new/different products.  High degree of individual freedom › Businesses and individuals are free to do what they want.

18.  Small degree of government interference (Mixed Economy)  Economic decisions are made by all, not limited to government officials.  Seemingly unlimited variety of goods and services available to consumers.

19.  Does not provide for the basic needs of everyone. › Elderly, disabled and other groups would be unable to survive in a market economy without governmental assistance.

20.  Does not provide certain services that people value. › National Defense & Education.  High degree of uncertainty › Tommy Boy › Jobs going overseas › Market Failures

21.  Mixed Economy  Capitalism  Based on 4 important principles › Private Property › Freedom of choice › Profit › Competition

22.  Economic Freedom  Economic Equity  Economic Security  Price Stability

23.  Individuals have freedom to choose their own occupations, employers, and spending habits.  Businesses have freedom to choose how and where to produce goods/services.  Are we meeting this goal?

24.  People should receive equal pay for equal work.  People should receive adequate pay for the work they perform.  People should all have the same opportunities to get ahead.  Are we meeting this goal?

25.  We should have protection from negative economic events such as layoffs and injuries. › Social Security – federal program that provides disability and retirement benefits.  Everyone should have their basic needs met.  Are we meeting this goal?

26.  We should have stable prices that protect against inflation. › Inflation – a rise in the general level of prices.  Are we meeting this goal?

27. …People get mad!!!!!!!