economic systems chapter 2. scarcity this is a fact of life three questions what should be...
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Economic SystemsChapter 2
Scarcity This is a fact of life Three questions
What should be produced? How should it be produced? For whom should it be produced?
An economic system is the way a society uses it scarce resources to satisfy it people’s unlimited wants
Traditional Economy An economic system in which people
produce and distribute goods according to custom handed down from generation to generation Survival – main goal – What? Everyone has a set role – How? Good of the group not individual – Whom?
Command Economy The government will decide what goods
and services will be produced, how it should be produced, and for whom it should be produced.
Individual wants are rarely considered Current - North Korean and Cuba Previous – Soviet Union, Poland, East Germany
Market Economy Is an economic system in which
individual choice and voluntary exchange direct economic decisions (individual choice) Consumer and producer drives the
economy – What? Producer (individual-owned enterprises)
decide – How? Self-interest, who can afford them –
Whom?
Mixed Economy Economic system that incorporates
some governmental involvement into a Market Based Economy Most Modern Economy
Section 1 Assessment Key concept questions 1- 6
Critical Thinking question 9
Group Project In groups, create a poster that shows
the three economic questions and how a traditional, command, and market economy answers each of those questions. Arrange the poster in any way but make sure that it contains at least one illustration for each question for each economies
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Command Economies Members of the central government
Economic decisions Centrally planned economy
Government Control Who What How
Socialism and Communism
Karl Marx Social conflict Industrialist grew richer and workers
remain poor
Socialism – government owns some or all of the factors of production
Communism – no private ownership of property and little or no political freedom
Authoritarian – absolute obedience to those in power
Communism Socialism Market System
Who owns resources?
Government Government owns basic resources, the
rest are privately owned
All resources privately owned
How are resources allocated?
Government planners decide
how resources are used
Government planners allocate basic resources; market forces
allocate privately-owned resources
Market forces
allocate resources
What roles does government play?
Government makes all economic
decisions
Government makes decisions in the basic industries
Governments role
limited-mostly to
ensure market
forces are free to work
Why is government ownership of the means of production necessary to achieve communist goals?
How are the goals of the socialism met by allowing both government ownership and private ownership of resources?
Economic Revolutionary Traveled many
countries Industrial period Wage slavery Social Conflict Rich gets richer,
Poor gets poorer
North Korea Communist control
Every economic decision Nuclear project
Population starvation – scarce of food Other countries provided food aid
Good for the country and less concentration on the people
Impact Government takes care of people Little concern or knowledge of local
conditions No work motivation Shortages - long lines waiting to
supplies No individual rights
Section 2 Assessment Key Concepts questions 1 – 5
Critical Thinking question 8
What advantages and disadvantages did Russians experience with a command economy? With a market economy?
What characteristics of a market economy have contributed to the divide between rich and poor?
Will conditions for the poor likely improve or get worse as market economic factors become more firmly established in Russia? Why?
Market Economy Private Property rights – individuals
have the right to own property, resources, and businesses Property is defined as anything a person
can own Market – any place where people buy
and sell goods and services Exchange private property for someone
else’s
Limited Government Involvement
The idea that the government should have limited interference with business and economy is called laissez faire French meaning: “leaving things alone”
This has the same ideals as capitalism Private ownership – profit
However, the government has some control or involvement
Voluntary Exchange in Markets Voluntary exchange – when the buyer
and seller of a product or service is worth more than what they gave up Desire vs. Profit
Profit is the earning above the amount of original cost
Competition and Consumer Sovereignty
In today market, competition, the effort of two or more people, acting independently, to get the business of others by offering the best deal, is vital. Generics vs. Name Brand
Since the consumer has a choice to purchase what they want, they have the ultimate control of what is produced, Consumer Sovereignty
Specialization, focus on the market or area that they know best, is a key component for businesses
Circular Flow How does the market economy function
Circular Flow Model – economist visualize how the market flows in an economy Households - individual use Businesses Page 53, figure 2.4
Product Market Product Market is the goods and
services
Consumer purchase goods and services Mall, grocery store, department store
Businesses offer the goods and services for sale
Factor Market Businesses purchase the resources they
need to produce goods and services Factor of production
land, Labor Capital Entrepreneurship
Businesses become the customers and the individuals are the producers
Circular Flow Model http://
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Section 3 page 57 Assessment Key Concept questions 1- 5
Critical Thinking question 9
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How has the Constitution shaped the Economic System in the U.S.? Constitutions are economic documents as well
as political documents. This is certainly true of the Constitution of the U.S. Our nation’s founders believed that economic freedom as well as political freedom are essential for national prosperity and growth. Accordingly, they included numerous provisions in the Constitution that support and encourage the operation of a market economy. Thus, as the basic “law of the land,” the U.S. Constitution defines the essential features of our economy.
Activities Characteristics of Market economy Matching Provisions of the U.S.
Constitution with Basic characteristic of Market Economy
Economic provisions in the constitution of the People’s Republic of China
Preamble to the Constitution We the people of the United States, in
order to form a more perfect Union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution of the United States of America.
Modern Economies in a Global Age
Mixed Economy – an economic system that is a combination of a traditional, command, and market economies
Most common in today’s society United States - example
Level of Government Economist use a math calculation to
determine the level or percentage of government involved in an economy.
Page 60, figure 2.5 Share of the economy = Government consumed by consumption Total Economy
Trends in Modern Economies In recent history, many countries have
been changing their type of market in order bust their economy. Nationalize – changing from private
ownership to government or public ownership
Privatize – moving from a government or public ownership to private ownership
Global To encourage privatize ownership, they
should open up their industry to foreign investors Global economy – economic interactions
that cross international boundaries Buy and sell to foreign markets
Market video http://www.learner.org/series/econusa/u
nit01/