what are the three

7/25/2019 What Are the Three

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What are the threeWhat are the three

Economic Questions?Economic Questions?Students will compare the majorStudents will compare the major

economic systems in the world andeconomic systems in the world andexamine their ability to provide citizensexamine their ability to provide citizens

with social and economic freedoms.with social and economic freedoms.


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The Three Basic EconomicThe Three Basic Economic

QuestionsQuestions

1. What goods and services should be1. What goods and services should be

produced?produced?

2. How should these goods and services2. How should these goods and services

be produced?be produced?

3. Who consumes these goods and3. Who consumes these goods and

services?services?


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What goods and services shouldWhat goods and services should

be produced?be produced? Basic Needs-Basic Needs-food clothing and shelterfood clothing and shelter

!roblems in "odern #ocieties-!roblems in "odern #ocieties-

- How man$ resources do we devote to national- How man$ resources do we devote to nationaldefense education public health welfaredefense education public health welfare

consumer goods?consumer goods?

- What consumer goods should- What consumer goods shouldwe produce?we produce?


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How should these goods andHow should these goods and

services be produced?services be produced? %lthough there are countless wa$s to create all the%lthough there are countless wa$s to create all the

things we want and need all re&uire land labor andthings we want and need all re&uire land labor andcapitalcapital

'he factors of production can be combined in'he factors of production can be combined indifferent wa$sdifferent wa$s

#hould we produce electricit$ with oil solar power#hould we produce electricit$ with oil solar powernuclear water or coal?nuclear water or coal?

#hould teachers have 2( or )( students in a class?#hould teachers have 2( or )( students in a class?


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Who consumes these goods andWho consumes these goods and

services?services? How do we distribute abundance?How do we distribute abundance?

* Who gets to eat a balanced diet and who doesn+t?Who gets to eat a balanced diet and who doesn+t?

* Who get to bu$ a lu,ur$ car and who can+t afford one?Who get to bu$ a lu,ur$ car and who can+t afford one?

* Who lives in a mansion and who lives in the proects?Who lives in a mansion and who lives in the proects?

* actor pa$ments- the income people receive for suppl$ingactor pa$ments- the income people receive for suppl$ingfactors of production- land labor capital andfactors of production- land labor capital and

entrepreneurship.entrepreneurship.

1. /,amples1. /,amples

Who gets what, is the key difference between economicWho gets what, is the key difference between economic

systems today. Every society answers this questionssystems today. Every society answers this questions

based on their social goals and valuesbased on their social goals and values


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Economic Goals of a SocietyEconomic Goals of a Society* Economic System-Economic System- the method used b$ a societ$ to

produce and distribute goods and services.

* hree Economics Systemshree Economics Systems

1. 0apitalism

2. 0ommand

3. "i,ed /conom$


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The 7 Goals of an EconomyThe 7 Goals of an Economy

!. Economic efficiency-!. Economic efficiency-"aing the most of $ourresources an econom$ that can+t deliver goods isn+tefficient.

". Economic freedom-". Economic freedom-reedom from governmentintervention in the production and distribution ofgoods and services

#. Economic security and predictability-#. Economic security and predictability-%ssurance

that goods and services will be available pa$mentswill be made on time and a safet$ net will protectindividuals in times of economic disaster


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The 7 Goals of an EconomyThe 7 Goals of an Economy

$. Safety %et-$. Safety %et-government programs that protect

people during bad economic times./,amples-

&. Economic equity-&. Economic equity-How much should $ou get paidfor $our services or lac of services.

'. Economic growth and innovation-'. Economic growth and innovation-nnovationleads to economic growth and economic growthleads to a higher standard of living.

(. )alue goals-(. )alue goals-#ocieties pursue additional goals suchas environmental protection universal medical care

etc


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How does this representHow does this represent

innovation and growth?innovation and growth?


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How does this representHow does this represent

innovation and growth?innovation and growth?


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Market Economy (CapitalismMarket Economy (Capitalism

*efinition-*efinition-econom$ based on private ownership wereeconom$ based on private ownership wereindividuals control the production distribution and sale ofindividuals control the production distribution and sale ofgoods.goods.

+ey erson+ey erson%dam #mith-%dam #mith- Wealth of NationsWealth of Nations

Why do markets eist?Why do markets eist?1. "arets e,ist because none of us produces1. "arets e,ist because none of us producesall the goods and services we re&uire to satisf$all the goods and services we re&uire to satisf$ our needsour needsand wants.and wants.

How is mone$ and goods e,changed in a ree "aret?How is mone$ and goods e,changed in a ree "aret?1. n a free maret econom$ households and1. n a free maret econom$ households and businessbusinessfirms use marets to e,change mone$firms use marets to e,change mone$ and products.and products.Households own the factors ofHouseholds own the factors of production and consumeproduction and consumegoods and services.goods and services.


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The !rinciples of "ree EnterpriseThe !rinciples of "ree Enterprise

1. rofit /otive

* 'he drive for theimprovement of materialwell-being.

2. 0pen opportunity

* 'he abilit$ for an$one tocompete in themaretplace.

3. 1egal equality

* /&ual rights to all.

4. rivate property rights

* 'he right to control $our

possessions as $ou wish.

). 2ree contract

* 'he right to decide whatagreements in which $ouwant to tae part.

5. )oluntary echange

* 'he right to decide whatand when $ou want to bu$and sell a product.

6. 3ompetition

* 'he rivalr$ among sellersto attract consumers.


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Households supply

firms with land, labor,

and capital.

Firms supply

households with

goods and

services.

Households pay

firms for goods

and services.

Firms pay householdsfor land, labor, and

capital.

Product market

Factor market


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The "orces in a "ree MarketThe "orces in a "ree Market

Self-interest-Self-interest-n ever$ transaction the bu$er andn ever$ transaction the bu$er andseller consider onl$ their own personal gain. #elf-seller consider onl$ their own personal gain. #elf-

interest is the motivating force in the free maret.interest is the motivating force in the free maret.

3ompetition3ompetition-- !roducers in a free maret struggle for!roducers in a free maret struggle forthe dollars of consumers this is the regulating force ofthe dollars of consumers this is the regulating force of

the free maret.the free maret.

774nvisible hand5-4nvisible hand5-'he interaction of bu$ers and'he interaction of bu$ers andsellers motivated b$ self-interest and regulated b$sellers motivated b$ self-interest and regulated b$

competition all happens without a central plan.competition all happens without a central plan.


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Market Economy# StrengthsMarket Economy# Strengths

Economic Efficiency-Economic Efficiency-as a self regulating s$stemas a self regulating s$stem0apitalism is ver$ efficient0apitalism is ver$ efficient

Economic 6rowth-Economic 6rowth-ree maret encouragesree maret encourages

innovation which leads to growthinnovation which leads to growth

Economic 2reedom-Economic 2reedom-offers the most economicoffers the most economic

freedomfreedom

7dditional 6oals-7dditional 6oals-offers the largest variet$ of goodsoffers the largest variet$ of goods

and servicesand services


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Market Economy# $eaknessesMarket Economy# $eaknesses

77reedom8 to starve wealth is unevenl$ distributedreedom8 to starve wealth is unevenl$ distributed

N9 e&uit$ or fairnessN9 e&uit$ or fairness

N9 motive to help the poorN9 motive to help the poor

:reed for profit can result in dangerous goods being:reed for profit can result in dangerous goods beingprovidedprovided

!oor !roduct safet$!oor !roduct safet$


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Command EconomyCommand Economy *efinition-*efinition- the government owns both land and capital.the government owns both land and capital.

'he government decides what to produce how much to'he government decides what to produce how much toproduce and how much to charge.produce and how much to charge.

+ey erson-+ey erson-;arl "ar,


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Centrally !lanned SystemCentrally !lanned System

7griculture-7griculture-the government created largethe government created largestate-owned farms and collectives for most ofstate-owned farms and collectives for most of

the countr$+s agricultural production.the countr$+s agricultural production.

4ndustry-4ndustry-planners favored heav$-industr$planners favored heav$-industr$

production =such as steel and machiner$>production =such as steel and machiner$>

over the production of consumer goods.over the production of consumer goods.

3onsumers-3onsumers-0onsumer goods are scarce and0onsumer goods are scarce and

usuall$ of poor &ualit$usuall$ of poor &ualit$


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Centrally !lannedCentrally !lanned

Strength-Strength-/ver$one nows what the plan is/ver$one nows what the plan isand is focused on completing that plan.and is focused on completing that plan.

Weaknesses-Weaknesses-1. @nable to pull this off in a modern countr$1. @nable to pull this off in a modern countr$

=countries are too big>.=countries are too big>.

2. nefficient and leads to shortages of needed2. nefficient and leads to shortages of neededitems- but a surplus of non-essential items.items- but a surplus of non-essential items.

=@nderutiliation>=@nderutiliation>

3. Aesponds slowl$ to change3. Aesponds slowl$ to change

4. No worer incentives4. No worer incentives


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Mi%ed EconomiesMi%ed Economies efinition-efinition-an econom$ that is a mi,ture ofan econom$ that is a mi,ture of

both command and maret economies. 'hereboth command and maret economies. 'hereare no pure forms of either most countriesare no pure forms of either most countrieshave some government intervention.have some government intervention.

:ive 'hree /,amples of !ositive :overnment:ive 'hree /,amples of !ositive :overnmentnterventionntervention

1.1.

2.2.

3.3.


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monetary low

physical low

monetary low

physical low

!ircular Flow "iagram o a #i$ed Economy

Households Firms

ta$es

gove

rnm

ent

purcha

ses

gov

ernm

ent%

own

edactors

ta$es

&overnment e$penditurese$penditures

Product market

Factor market

what are the three

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