chapter 2 section 1 economic systems. 2 i. describe the characteristics of the traditional economy....

Chapter 2

Section 1Economic Systems

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I. Describe the characteristics of the traditional economy.

A. Economic System – An organized way of providing for wants and needs of a society.

B. WHAT, HOW, and FOR WHOM.

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I. Describe the characteristics of the traditional economy.

C. Traditional Economy- Economic system in which basic economic activity stems from ritual, habit, or customs.

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I. Describe the characteristics of the traditional economy.

C. Traditional Economy

• 1) Strengths

• A) Everyone knows which role to play.• B) Born into roles.• C) Life is predictable and stable.

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I. Describe the characteristics of the traditional economy.

C. Traditional Economy

• 2) Weaknesses

• A) Discourages new ideas and new ways of doing things.

• B) Lack of progress.

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II. Explain the strengths and weaknesses of the command economy.

A. Command Economy – Economic system in which basic economic decisions are made by a central authority.

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II. Explain the strengths and weaknesses of the command economy.

B. Command Economy

• 1) Strengths

• A) Can change direction drastically in a short time.

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II. Explain the strengths and weaknesses of the command economy.

B. Command Economy 2) Weaknesses

• A) Not designed to meet the needs and wants of individuals.

• B) Lacks incentives for people to work hard.

• C) Requires a large decision-making bureaucracy.

• D) Lacks the flexibility to deal with minor problems.

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III. Examine the strengths and weaknesses of a market economy.

A. Market Economy – Economic system in which basic economic decisions are made by people

and firms acting in their own best interest.

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III. Examine the strengths and weaknesses of a market economy.

B. Market Economy

1) Strengths

• A) Can adjust to change over time.• B) Has decentralized decision making.• C) It gives producers and consumers a

great deal of freedom.• D) Relatively small degree of

government interference.• E) High degree of customer satisfaction.

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III. Examine the strengths and weaknesses of a market economy.

B. Market Economy

2) Weakness

• A) FOR WHOM

END OF SECTION 1

Section 2

Evaluating Economic Performance

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I. Describe the basic economic and social goals used to evaluate economic performance.

A. Economic freedom – An economic goal that is based on the desire of people to make their own decisions.

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I. Describe the basic economic and social goals used to evaluate economic performance.

B. Economic Efficiency – Factors of production must be used wisely.

C. Economic Equity – Based on a sense of fairness.

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I. Describe the basic economic and social goals used to evaluate economic performance.

D. Economic Security

1) Social Security – Federal program of disability and retirement benefits.

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I. Describe the basic economic and social goals used to evaluate economic performance.

F. Price Stability –

1) Fixed Income - Income that does not increase even though prices go up.

2) Inflation – Rise in the general level of prices.

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I. Describe the basic economic and social goals used to evaluate economic performance.

G. Economic Growth –

1) Needed to meet everyone’s future needs.

2) Satisfy the wants and needs of a growing population.

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I. Describe the basic economic and social goals used to evaluate economic performance.

H. Origins of the seven major economic goals –

A combination of the beliefs and statements of American consumers, business people, and government officials.

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II. Examine the trade-offs among economic and social goals.

A. The economic system of the United States is flexible enough to allow choices, compromise, and to satisfy the majority.

END OF SECTION 2

Section 3

Capitalism and Free Enterprise

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I. Explore the characteristics of a free enterprise system.

A. Capitalism – Economic system in which private

citizens own the factors of

production.

B. Competition – The struggle among sellers to attract consumers while lowering costs.

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I. Explore the characteristics of a free enterprise system.

C. Free Enterprise Characteristics

• 1) Economic freedom – people have choices

• 2) Voluntary exchange – buyers and sellers freely and

willingly engage in market transactions

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I. Explore the characteristics of a free enterprise system.

C. Free Enterprise Characteristics

• 3) Private Property People have the right to control

their possessions as they wish

• 4) Profit Motive Driving force that encourages

people and organizations to improve their material well-being.

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I. Explore the characteristics of a free enterprise system.

• D. Profit – Extent of being better off at the

end of the day than you were at the beginning.

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II. Describe the role and importance of the entrepreneur.

A. Start new businesses. B. Are willing to take risks.

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III. Examine the role of the consumer as “sovereign”.

A. Consumer Sovereignty Concept that the consumer is the

ruler of the market.

B. “The Customer is Always Right”

C. Consumers decide what to purchase.

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IV. Describe the role that the government plays in free enterprise.

A. Protector - Laws for our health and safety.

B. Provider and consumer -

C. Regulator of business -

D. Promoter of national goals -

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IV. Describe the role that the government plays in free enterprise.

E. Mixed Economy

Free economic activity is subject to some government intervention and regulation.