© south-western 12.1 students understand common terms & concepts and economics reasoning....

© SOUTH-WESTERN

12.1 Students understand common terms & concepts and economics reasoning.

Standard Address

1

2.1 - Objectives Identify the three questions that all economic systems

must answer. Describe a pure market economy, and identify its

problems. Describe a pure centrally planned economy, and identify

its problems. Compare mixed, transitional, and traditional economies.

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 2.13

CHAPTER 2

Economic Systems and Economic Tools

2.12.1 Economic Questions and Economic Systems

2.22.2 Production Possibilities Frontier

2.32.3 Comparative Advantage


CHAPTER 2

Economic Systems and Economic Tools Why are economies around the world growing more

market oriented? How much can an economy produce with the

resources available? Can you actually save time by applying economic

principles to your family chores? Why is experience a good teacher? Why is fast food so fast?

Consider


LESSON 2.1

Economic Questions and Economic Systems economic system pure market economy pure centrally planned economy mixed economy market economy transitional economy traditional economy

Key Terms


The Three Economic Questions All economies must answer three

questions:

1.1. What goods and services will be produced?

2.2. How will they be produced?

3.3. For whom will they be produced?


The Three Economic Questions An economic system is the set of

mechanisms and institutions that resolves the what, how, and for whom questions. Some standards used to distinguish among

economic systems are:

1.Who owns the resources?

2.What decision-making process is used to allocate resources and products?

3.What types of incentives guide economic decision makers?


What Goods and Services Will be Produced? All economies must decide what

Goods and Services Will be Produced.


How will Goods and Services Will be Produced? Economic

systems determine how will Goods and Services Will be Produced.


For Whom Will Goods and Services Will be Produced? The economic

system must determine for whom the goods and services will be produced?


Interdependent Questions

Answers are interwoven





What three questions must all economic systems answer?




Checkpoint Pg. 35


Pure Market Economy

In a Pure Market economy – There is no government at all Coordination of economic activity

is based on the prices generated in free, competitive markets.

Any income derived from selling resources goes exclusively to each resource owner.


Invisible Hand of Markets

All resources are privately owned and owners are free to supply those resources to the highest bidder.

Market prices guide resources to their most productive use and channel goods to those consumers who value them the most.



Adam Smith

(1723–1790), This economists wrote a book titled “Wealth of Nations” it is the first book of modern political economy.



According to Adam Smith, although each individual pursues his or her self-interest, the “invisible hand” of market competition promotes the general welfare. Voluntary choices in

competitive markets answers the questions WHAT, HOW, & for WHOM


Problems with Pure Market Economies Difficulty enforcing

property rights

Examples Bootleg

Movies CD’s Software programs Knock offs


Problems with Pure Market Economies Some people

have few resources to sell


Problems with Pure Market Economies Some firms try to

monopolize markets


Problems with Pure Market Economies No public goods Private firms would

not provide for national defense.

© SOUTH-WESTERN

Externalities Some production and

consumption affects third parties – does not directly involved.

Problems with Pure Market Economies

CONTEMPORARY ECONOMICS: LESSON 2.121


What is pure market economy, and what are its problems? A pure market economy is an economy that runs strictly

through capitalism. There is no government intervention, and private ownership of all

resources, and price of all goods are determined in a free competitive market through consumer choice.

The problems with a pure market economy is There is difficulty enforcing property rights Some people have few resources to sell Some firms try to monopolize markets There are no public goods There are externalities

Checkpoint Pg. 37


Pure Centrally Planned Economy All resources

government-owned


Pure Centrally Planned Economy Production

coordinated by the central plans of government

Sometimes called communism


Visible hand

25


Pure Centrally Planned Economy

Use visible central planners Centrally planned economies

use the visible hand of central planners.


Problems with Centrally Planned Economies

1. Consumers get low priority When goods are rationed or

offered for an inflexible price, severe shortages can result.

2. Little freedom of choice

3. Central planning can be inefficient

4. Resources owned by the state are sometimes wasted

5. Environmental damage

© SOUTH-WESTERN

Planned Economy / Communist

Morris, a Russian man saves his rubles for twenty years to buy a new car. After choosing the model and options he wants, he's not the least bit surprised or even concerned to learn that it will take two years for the new car to be delivered.

He thanks the salesman and starts to leave, but as he reaches the door he pauses and turns back to the salesman "Do you know which what “day” two years from now the new car will arrive?" he asks.

Visibly irritated, the salesman flips through his papers and says sharply that it will be in the afternoon, two years from now on Thursday.

"That's a relief!" says Morris. "The plumber is coming that morning.”

CONTEMPORARY ECONOMICS: LESSON 2.128


What is a pure centrally planned economy and what are its problems? A pure centrally planned economy,

All resources are government owned, and Production is coordinated by the central plans of government.

The problems with centrally planned economies are:1. Consumers get low priority

2. Little freedom of choice

3. Central planning can be inefficient

4. Resources owned by the state are sometimes wasted

5. Environmental damage

Checkpoint Pg. 38

© SOUTH-WESTERN30

Mixed Economy United States is a mixed

economy. It is also considered a market

economy. Market economies coordinate

production through the invisible hand of market competition.

Government regulates the private sector in a variety of ways.


Transitional Economy

A transitional economy is in the process of shifting orientation from central planning to competitive markets.

It involves converting state-owned enterprises into private enterprises—privatization.

The transition now under way will shape economies for decades to come.


Traditional Economy

A traditional economy is shaped largely by custom or religion.

Family relations also play significant roles in economic activity.


Compare mixed, market, and transitional economics?

A market economy is a comparative market that is run strictly through private ownership of goods and the consumer demand for those goods.

A mixed economy is comprised of both a market economy and a central planning economy.

Transitional economies are markets that are in the process of shifting from publicly owned enterprises to private enterprises.

Checkpoint Pg. 40

© south-western 12.1 students understand common terms & concepts and economics reasoning....

Documents