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CH. 2: ECONOMIC SYSTEMS
S1: Answering the 3 Economic Questions
S2: The Free Market
S3: Centrally Planned Economies
S4: Mixed Economies
BELL WORK
Get books/folders ready Copy Chart on page 23 somewhere in notes
Fill this in as we go along in notes Will help give you an overview of section
Answer Chapter 2 Warm-up Pg. 12 A-D
2.1: ANSWERING 3 ECONOMIC QUESTIONS
Chapter 2 Essential Question
“How does a society decide who gets what Goods/Services”
Section 1 Guiding Question“What Goals/Values affect how a society
answers the key economic questions?” S.1 Objectives:
3 Economics questions Societal values that determine how they are answered Characteristics of Traditional Economy
Key Terms http://www.pearsonsuccessnet.com/snpapp/iText/prod
ucts/0-13-369833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s1.swf
INTRODUCTION
Goals/values that affect how a society answers key ?s Each society is guided by its economic system
Affects the way it does business w/in society and w/other societies
A societies values, such as freedom or tradition, guide the type of economic system they will have
3 ECONOMIC QUESTIONS
B/C of scarce resources a society must answer 3 ?s What goods/services should be produced?
How should these goods/services be produced?
Who consumes these goods/services?
How ?s are answered defines type of economic system society has
QUESTION 1 & 2
What goods/services should be produced? Society must decide what to produce in order to
satisfy wants/needs of its people Because of scarcity (limited resources), each
decision comes at an opportunity cost How should goods/services be produced?
As a society decides, it considers…… How to best use its 3 factors of production
Land Labor Capital : human/physical
Look at Figure 2.1 on pg. 24 (read/answer TPS) What does each choice involve?
Trade-offs
QUESTION 3
Who consumes goods/services? Mostly determined by how a
society distributes income Through factor payments,
including profits, society can determine who will be consumers of goods/services How much will owners make,
teachers, bankers, etc. Answer can tell a great deal
about societies values
ECONOMIC GOALS
Efficiency
Freedom
Security
Equity
Growth
ECONOMIC EFFICIENCY
Societies answer 3 ?s based on importance they attach to their economic goals
Scarce resources make societies try to maximize what they can produce using their resources If they can accurately
assess what to produce they can increase their efficiency
ECONOMIC FREEDOM AND SECURITY
Some societies limit the economic freedoms of its people U.S., we face some limitations, but in general, we
have a lot of freedom Economic systems also strive to achieve a
degree of economic security Basically, systems are there to reassure people
that goods/services will be available and they will get paid for work as well
ECONOMIC EQUITY AND GROWTH
Another goal that is defined differently in different societies. Basically how they will divide their “pie”
Checkpoint: “What are 2 examples of economic goals?”
Growth: Economies need to grow Need to provide jobs for new people in workforce Strive to improve standards of living Innovation plays a large role in economic growth
and success
ECONOMIC GOALS IN CONFLICT
There are some additional economic goals for certain societies Environmental protections Full employment Protecting national industries
Societies end up having to prioritize their economic goals (arrange them in order of importance) Each choice comes with some kind of trade-off
TRADITIONAL ECONOMIES
Oldest and simplest economic system Rely on habit, custom, or ritual Revolve around family Little room for innovation/change
Found in communities that… Stay small and close Work to support entire community over selves
Success is judged by how they meet their own needs Often lack modern conveniences Lower standards of living
LESSON CLOSING
Complete pg. 13 Exploration; Both A and B
HW and some of BW tomorrow Page 55
Evaluating U.S. Economy Read Section 2
CHAPTER 2 BELL-WORK
Get Books/Folders
Finish up pg. 55
Copy chart for S2 to top of notes or sheet
Fill in Chart from section 1 that you copied Go over answers
CHAPTER 2 : SECTION 2
“What are the characteristics of a free-market economy?” write on top of notes
Objectives Explain why markets exist Analyze a circular flow model of a free-market
economy Describe self-regulating nature of marketplace Identify advantages of free-market economy
Key Terms http://
www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s2.swf
INTRODUCTION
What are the characteristics of Free-market economy? Characterized by…..
Households and firms Factor and product markets Self-interest Competition Economic freedom, efficiency, and equity
WHY DO MARKETS EXIST?
Markets exist to eliminate the need for any one person to be self-sufficient Examples: NYSE, Farmers markets, Scheel’s, Wal-Mart They allow us to exchange the things we have for
things we want Money for goods/services in most cases
Lead to specialization Rather than self-sufficiency, we specialize in a few
products/services Leads to efficient use of 3 factors of production Allows businesses to focus on limited number of
related products/services Markets are needs as an arena to buy/sell
products
FREE MARKET ECONOMY 3 ?s answered by voluntary exchanges in
Marketplace Individuals choose
What gets made How it is made How much people can consume of good/service
Individuals/Private businesses own factors of production
Look at figure 2.2 pg. 31 Need to understand what each sector provides
one another Answer two questions…. TPS
FACTOR AND PRODUCT MARKETS
Factor Market Firms purchase factors of production
Renting/buying land, hiring/paying workers, borrowing $$
Product Market Arena where households buy good/services a
firm produces Checkpoint:
What is the role of firms in the free-market economy? Firms buy factors of production from households, then
uses them to produce goods/services
SELF REGULATION
Wealth of Nations Adam Smith observed countless transactions in
marketplace that showed…. Buyers/Sellers only consider their self-interests
Smith’s take Positive incentives of lower prices causes more buying
B/C opportunity cost of the purchase is lowered
Regulations Self-interest is the motivating force in the free-
market Consumers pursue their self-interest by looking for
lower/lowest prices
SELF-REGULATION
Competition Firms seek to make higher profits by increasing
sales Competition among firms makes increasing sales
not always possible
Self-interest and competition work together to regulate the marketplace
Smith called this the “Invisible Hand”
ADVANTAGES OF FREE MARKET
“Perfect Conditions” lead to meeting these goals Read aloud…. Pg.34 Efficiency
Rapid response to changing conditions Freedom
Large degree of economic freedom Growth
Encouragement of economic growth Lend themselves to consumer sovereignty
Consumers have power to decide what gets produc
ANSWER THE QUESTION TO CAPTION ON PG. 32
LESSON CLOSING
Workbook Pg. 14 Pg. 63
HW Read Section 3 Finish up pg. 63 Activity