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Economic Systems

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Economic Systems Chapter 2 Section 1 ... Because of our limited resources, each production decision that a society must make comes at an ... Making the most of the ... – PowerPoint PPT presentation

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Title: Economic Systems


1
Economic Systems
  • Chapter 2 Section 1
  • Answering the Three Economic Questions

2
Economic Systems
  • Objectives
  • Identify the three key economic questions of
    what to produce, how to produce, and who
    consumes what is produced.
  • Analyze the societal values that determine how a
    country answers the three economic questions.
  • Explain the characteristics of traditional,
    command, and market economies and describe the
    societal values that influence them.

3
Economic Systems
  • Scarcity is that we cannot have all that we want
    or need.
  • In some places in the world, people cannot even
    meet their basic needs for food, clothing, and
    shelter.
  • Scarcity forces societies and nations to answer
    some hard economic questions.
  • Different economic systems have evolved in
    response to the problem of scarcity.

4
Economic Systems
  • Economic System the method used by a society
    to produce and distribute goods and services.
  • Which economic system a society employs depends
    on that societys goals and values.

5
Economic Systems
  • Three KEY Economic Questions
  • Because economic resources are limited every
    society must answer three key economic questions.
  • 1. What to produce?
  • 2. How to produce?
  • 3. For whom to produce?

6
Economic Systems
  • Three KEY Economic Questions
  • 1. What goods and services should be produced?
  • gt Individuals in every society must decide what
    to produce in order to satisfy societys needs
    and wants.
  • gt In todays society nations have to decide
    how much of their total resources to devote to
    national defense, education, public health,
    welfare, or consumer goods.
  • gt Because of our limited resources, each
    production decision that a society must make
    comes at an opportunity cost.

7
Economic Systems
  • Three KEY Economic Questions
  • 2. How should these goods and services be
    produced?
  • gt Next question is how to use our resources to
    produce goods and services.
  • gt Do we produce electricity with oil, solar
    power, or nuclear power.
  • gt Should we produce food on large corporation
    farms or on small family farms?
  • gt Before the introduction of modern farming
    equipment - - it took 56 worker-hours to farm
    one acre of land (produced 15 bushels of
    wheat)In todays mechanical world - - it
    takes it takes 2.9 worker-hours to farm one
    acre of land (produce 40 bushels of wheat)

8
Economic Systems
  • Three KEY Economic Questions
  • 3. Who consumers these goods and services? gt By
    the 1990s, the top manufacturers in the US
    were launching 13 new products each day
    filling the store shelves even more that they
    were.
  • gt Stores on average carry 30,000 different
    items compared to 3,000 items some 50 years
    ago.
  • gt How do we divide up all these goods that are
    produced each year?

9
Economic Systems
  • Three KEY Economic Questions
  • 3. Who consumers these goods and services?
  • gt Who gets to drive a luxury car
  • Ferrari 430 and who can only afford a bus
    pass.

10
Economic Systems
  • Three KEY Economic Questions
  • 3. Who consumers these goods and services?
  • gt Who attends a rap concert and who stays
    home?
  • Eric Clapton

11
Economic Systems
  • Three KEY Economic Questions
  • 3. Who consumers these goods and services?
  • gt Who gets access to a good education and who
    has to start working after high school?

12
Economic Systems
  • Three KEY Economic Questions
  • 3. Who consumers these goods and services?
  • gt The answer to the questions of distribution
    is determined by how societies choose to
    distribute income.
  • gt Factor payments the income people receive
    for supplying factors of production Land,
    Labor, Capital, or Entrepreneurship.
  • gt How much should we pay the owners of the
    factors of production? How do we decide how
    much a particular piece of land is worth? How
    much do people in professions make?

13
Economic Systems
  • Three KEY Economic Questions
  • 3. Who consumers these goods and services?
  • gt Who gets to consume which goods and services
    lies at the very heart of the differences
    between economic systems today?

14
Economic Systems
  • Economic Goals and Societal Values
  • Different societies answer the three economic
    questions based on the importance they attach to
    various economic goals.
  • Command
    Economy Cuba
  • Traditional
    The Free Enterprise
  • Economy Anything else is just a
    bus ride
  • Inuits

15
Economic Systems
  • Economic Goals and Societal Values
  • 1. Economic Efficiency
  • Most societies try to maximize their resources
    they have to work with. Making the most of the
    resources.
  • Lumber Coal
    Labor

16
Economic Systems
  • Economic Goals and Societal Values
  • 2. Economic Freedom
  • Freedom from government intervention in the
    production and distribution of goods and
    services.
  • We value the opportunity to make our own choices
    in things like the job we want, the
    products/services we buy, and etc.

17
Economic Systems
  • Economic Goals and Societal Values
  • 3. Economic Security and Predictability
  • We want an assurance that the goods and services
    will be available, payments will be made on time,
    and a safety net will protect individuals in
    times of economic disaster.
  • i.e. Unemployment Insurance Disability
    Insurance Social Security and others

18
Economic Systems
  • Economic Goals and Societal Values
  • 4. Economic Equity
  • Society must decide the best way to divide its
    economic pie.
  • What constitutes a fair share?
  • Should everyone get the same, or should ones
    consumption depend on how much one produces?
  • How much should society provide for those who are
    unable or unwilling to produce?
  • Doctors earn more than garbage collectors
  • Professional athletes earn more than secretaries

19
Economic Systems
  • Economic Goals and Societal Values
  • 5. Economic Growth and Innovation
  • A nations economy must grow for a nation to
    improve its standard of living.
  • Standard of Living is the level of economic
    prosperity.
  • If a country is growing, the economy has to grow
    in order to provide new jobs and income for
    people.

20
Economic Systems
  • Economic Goals and Societal Values
  • 6. Additional Goals
  • A society may value goals in addition to those we
    have talked about in the previous slides.
  • Environmental protection, full employment,
    universal medical care, and other goals that may
    come to be in the future.

21
Economic Systems
  • Economies and Values
  • Four different economic systems have developed to
    address the three key economic questions.
  • Each system reflects a different prioritization
    of economic goals
  • It also reflects the values of the societies in
    which these systems are present.

22
Economic Systems
  • Traditional Economies
  • They rely on habit, custom, and rituals to decide
    what to produce, how to produce it, and to whom
    to distribute it.
  • There is little room for (no) innovation or
    change.
  • The traditional economic system revolves around
    the family.
  • Work tends to be divided along gender lines.
  • Kids take up the occupation of their parents.
  • i.e If your family fish for a living, you will
    fish when you grow up.

23
Economic Systems
  • Traditional Economies
  • These communities tend to stay relatively small
    and close.
  • They work to support the entire group instead of
    themselves.
  • Agricultural and hunting are the basics.

24
Economic Systems
  • Market Economies
  • Economic decisions are made by individuals and
    are based on exchange or trade.
  • The choices made by individuals determine what
    gets made and how, as well as who consumes the
    goods and services.
  • These economies are also called free markets

25
Economic Systems
  • Command Economies
  • In a centrally planned economy the central
    government alone decides how to answer the three
    questions.
  • This is called Command Economies.

26
Economic Systems
  • 4. Mixed Economies
  • Most modern economies are mixed.
  • They are a market-based economic system in which
    the government plays a limited role.

27
Economic Systems
  • REVIEW
  • 1. What is an economic system?
  • 2. How do a traditional economy, a market
    economy, a command economy, and a mixed economy
    differ?
  • 3. Why arent all people paid the same amount in
    factor payments for the resources they provide?
  • 4. Why do governments provide safety nets for
    their citizens?
  • 5. Give at least example of a traditional, a
    command, and a market economic system.
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