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The American Economic System

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The American Economic System Basic Economic Unit Part II Types of Economic Systems Traditional Characteristics: Little Change Based on Custom How answer ... – PowerPoint PPT presentation

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Title: The American Economic System


1
The American Economic System
  • Basic Economic Unit Part II

2
Types of Economic Systems
3
Traditional
  • Characteristics
  • Little Change
  • Based on Custom
  • How answer the economic questions?
  • How they always have

4
Command
  • Characteristics
  • Government controls means of production
  • Little individual influence
  • Communism Socialism
  • How answer the economic questions?
  • Government does

5
Socialism
  • Gov. owns some factors of production and
    distributes products and wages

6
Communism
  • Socialism under the dictatorship of the communist
    party

7
Market
  • Characteristics
  • Private individuals control the factors of
    production
  • Individual freedom
  • How questions answered?
  • By businesses and consumers

8
Mixed
  • Characteristics
  • Some individual freedom some government control
  • How are questions answered?
  • Individuals do but have some government
    intervention

9
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10
All economies are actually mixed. What determines
whether an economy is considered market or
command depends on the level of
  • Government involvement.

11
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12
Who developed the principles of a market economy?
  • Adam Smith

13
What was the Wealth of Nations?
  • Smiths book that explained the principles of
    Capitalism

14
What did Smith mean by Laissez-faire economics?
  • To let alone
  • Government should stay out of marketplace except
    to ensure competition

15
The Invisible Hand
  • Belief that individuals on their own would work
    for own self-interest
  • Would be guided by invisible hand to use
    resources efficiently

16
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17
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18
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19
Characteristics of Market/Free Enterprise System
  • Little or no government intervention
    governments role in econ. is to ensure
    competition
  • Free Enterprise Competition with little gov.
    interference
  • Freedom of Choice individuals can choose what
    work to do and what we buy

20
Characteristics Continued
  • Private Property right to own and use our
    property as we choose within certain legal limits
  • Profit Incentive the driving force of
    capitalism, the ability to accumulate wealth
  • Competition the struggle between buyers and
    sellers to get the best products at lowest prices

21
What does the Circular Flow Model illustrate?
  • How resources, goods and services, and money flow
    in a circular pattern

22
Market
  • The exchange of goods and services between buyers
    and sellers

23
Factor Market
  • Where productive resources (the factors of
    production) are bought and sold

24
Product Market
  • Market where goods and services (finished
    products) are offered for sale

25
What happens when less is exchanged in the
circular flow?
  • The economy shrinks, productivity goes down

26
What happens when more is exchanged?
  • Economy grows, productivity increases

27
What is productivity?
  • The amount of output that can be produced by a
    set amount of resources in a given period of time

28
Productivity
  • Goes up when can produce the same amount of
    output in less time
  • Or
  • When can produce more output with same amount of
    resources in same time

29
Increasing Productivity
  • Specialization when people, businesses or
    countries focus on what they do best
  • Division of Labor breaking down of a job into
    small parts performed by different workers
  • Investing in Human Capital spending to improve
    worker skills

30
What do these practices create between
individuals, communities and nations?
  • Economic Interdependence creates dependence
    between people for goods and services
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