WARM UPScenario: What Would You Do?

• What goods and services will be produced?• Of the following, which will you produce for your people?

Choose ONLY 4– Local Defense, Food, Healthcare, Clothing, Technology, Transportation,

Public Schooling, National Defense

• How will the goods and services be produced?• Who will produce it? The People or the Government?

• Who will get the goods and services?• Prioritize the following groups and why they get it first.• Rich, Middle Class, Poor, Adults, Children, Sick, Healthy

• Create your “Island” and explain how your society would work.

CHAPTER 3Economic Systems

FUNDAMENTAL QUESTIONS OF ECONOMIC SYSTEMS

What are the fundamental economic questions?How does each type of economic system answer these fundamental questions?

THERE ARE 5 FUNDAMENTAL QUESTIONS…

1. What goods and services will be produced?2. How will the goods and services be produced?3. Who will get the goods and services?4. How will the system accommodate change?5. How will the system promote progress?

6 MAJOR GOALS OF CHOOSING AN ECONOMIC SYSTEM

Economic FreedomEconomic EfficiencyEconomic EquityEconomic GrowthEconomic SecurityEconomic Stability

Economic Freedom

Freedom make, buy, or sell goods and services without government interference.

• Tough to achieve fully• Government protection from violators

Economic EfficiencyMaking the most of resources with the least amount of waste

• Includes all natural and human resources• FULL Employment is the ultimate goal

Economic Equity

Fair distribution of society’s wealth. Everyone gets a fair share of the economic pie.

• Problems:• What is equal?• Who gets a little? Who gets a lot?• What about the rich and the poor?

Economic GrowthStriving to produce more goods and better quality goods

• This is usually a goal of all economic systems

Providing to support those who cannot support themselves

• Those who are too young, too old, too sick, or the dying

Economic Stability

Keeping the economy running well and stable

• Things should be predictable

ECONOMIC SYSTEMS

TraditionalCommandMarket

Economic Systems

The ways in which a country decides to produce, buy, and sell their products and resources

• There are 3 major types of economic systems:• Traditional (Subsistence)• Command (Socialism/Communism)• Market (Capitalism)

Traditional EconomyCustoms and traditions dictate the economy.

• Examples:• American Indian tribes• African Tribes

Where are the people in each cartoon?

Who or what decides what consumers get in Cartoon A? Cartoon B?

What advantages and disadvantages do you see represented in Cartoon A? Cartoon B?

Which store would you prefer to shop in, and why?

COMMAND ECONOMY

What is a Command EconomyFailures of the Command Economy

Command Economy

Government makes all the decisions.Government answers fundamental questions.• Favor equity and security

Economy is centralized.

SHORTAGES DID OCCUR

Examples:• USSR

Failures of a Command Economy

Coordination of the EconomyNo measurement of success• No incentives• No chance for improvements

Appearance of mistakesLack of substitutions

MARKET ECONOMYWhat is a Market Economy?

The Market Economy

Economy depends on decisions made by individuals (producers and consumers)

Favors economic freedom and efficiency

Individuals and business are free to make their own economic choices----competition

NORTH KOREA

EXTREMELY RESTRICTED BY THE GOVERNMENT

HONG KONG

EXTREMELY FREEFEW REGULATIONS

“The Invisible Hand”

Main point of Adam Smith’s The Wealth of Nations (1776)– Adam Smith = Father of economics

The Invisible Hand– Idea of self-interest and how it promotes economic

prosperity without the individual knowing

60 Seconds Economics Lessons-The Invisible hand

Incentives and the Free Market

Incentives are the driving force in a market system– Utilizing hard work, skill, innovation to make a profit– The incentive to better your situation– Encouragement of taking risks– Freedom of choice

• You are allowed to make choices in the market that increase your personal gain

– Private Property

Private Property

What is your definition of private property?– The right of private individuals or firms to do

obtain, own, control, employ, dispose of, or give land, capital, or any other sort of property