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

FINISH 1.1

BW Complete pg. 13

Exploration; Both A and B

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

HW and some of BW tomorrow Page 55

Evaluating U.S. Economy Read Section 2

Complete ALL of SECT 1 GUIDED READING/REVIEW Get started on Sect. 2 GUIDED READING/REVIEW

Fill in S1 Chart on top of notes.

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/0-13-36

9833-5/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

Quick Video over Market Vs. Command System: DONE

HW Read Section 3 Finish up pg. 63 Activity

CHAPTER 2 SECTION 3

Get books/folders

Finish up Pg. 63 from workbook

Copy down chart from section 3

CHAPTER 2 SECTION 3

“What are characteristics of centrally planned economy?” write in

notes

Learning objectives How centrally planned economy is organized Distinguish between socialism and communism Analyze the use of central planning in Soviet

Union and China Identify disadvantages of centrally planned

economy Key Terms

http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-369833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s3.swf

INTRODUCTION

What are characteristics of a centrally planned economy? The Government answers the 3 economic

questions Govt. owns factors of production Opposition to private property, free-market

pricing, competition, and consumer choice

HOW CENTRAL (COMMAND) WORKS

Govt., rather than indiv’s answers key economic ?s Govt. owns both land and capital Govt. controls where people work and their pay

Operate in contrast of free-market Oppose major concepts of Free-market

Private Property Free-pricing Competition Consumer choice

SOCIALISM VS. COMMUNISM• Wealth distribution• Equity only thru govt. or public

ownership• Market Socialism is a combo where

govt. uses taxes to helpSocialism

• Govt. controls all resources/means of production

• Capitalism is exploitation of workers for fewCommunism

TWO COMMUNIST ECONOMIES

Soviet Union 1st communists state in 1917; lasted till 1991

Wanted to build power/prestige Dedicated best LLC to heavy industry

Greatly effected factories of consumer goods Led to recurring shortages for lots of goods

China (1949-70s) Govt. controlled all aspects of Chinese economy Took over farming too, forced people into farming

communities Led to shortages form decreased farm production Eased control in 70s of most aspects

More economic freedom has allowed China to grow

DISADVANTAGES OF PLANNED

Often have trouble meeting the basic economic goals Decreases efficiency, poorly adjustable to market

changes Minimal economic freedom Innovation/creativity not rewarded, limits growth No equity

Can help jump-start a small economy or sector of. Guarantees jobs/incomes to people

LESSON CLOSING

Read Socialism in classroom What do you think would happen in this

classroom In other classroom that may be different than

this room TPS on some good/bad things that a

planned/control economy may offer Complete

Workbooks Pg. 71: comparing soc/comm. Pg. 15

CHAPTER 2 SECTION 4

BW

Grab books/folders

Finish any of pg. 71 in workbooks

Copy chart on pg. 39

CHAPTER 2 SECTION 4

“What are the characteristics of a mixed economy?” Write at top of notes

Learning objectives Explain rise of mixed economies Interpret circular flow model of mixed economy Compare mixed to other types Describe role of free enterprise in U.S. economy

Key Terms http://www.pearsonsuccessnet.com/snpapp/iText/products/0-13-3

69833-5/Flash/Ch02/Econ_OnlineLectureNotes_ch2_s4.swf

INTRODUCTION

What are the characteristics of a mixed economy? Market based economy w/ some govt.

intervention Govt. helps societies meet needs too difficult to

meet in Free-market Example: Education

Govt. protects property rights and ensures that exchanges in marketplace are fait

RISE OF THE FREE-MARKET

Even “pure” “free-marketers” understand the need for some govt. involvement

Mixed economy has a free-market, but also a certain degree of govt. control

Why govt.? Need to provide all members of a society some

basic needs Nat’l Defense, public education Protect private property Ensure fairness of exchanges in marketplace

GOVERNMENT IN THE MARKET

Govt’s buy labor in the factor market to have employees help run its programs

Governments purchase goods/services from firms in product market

Governments also collect taxes from both households and firms

Look at figure 2.4 on pg. 40 Answer questions……….. TPS

MIXED ECONOMIES W/HIGH GOVT. INTERVENTION: PG. 41

North Korea; represents one extreme Economy is almost totally dominated by Govt. Govt. owns all the property and output equipment

China Closer to middle b/c they are going through an

economic transition toward privatization

MIXED ECONOMIES W/LITTLE GOVT. INTERVENTION & U.S.

Hong Kong Represents one of world’s free-est markets Private sector is “king” Little govt. interference

Est. wage/price controls on rent and public services

U.S. Mixed economy w/Free-market foundation Characterized as a free-market system Look @/answer caption on page 43

US ECONOMY

Govt. intervenes in economy by……… Keeping order Providing vital services Promoting general welfare

Federal/state laws help protect private property Marketplace (place to exchange goods/services)

operates with limited degree of govt. regulation Economic Freedom

Very high level of freedom Foreign investment/free trade encouraged Banking industry operates under few restrictions

Foreign banks have fewer restrictions

LESSON CLOSING

Case Study: Look at Wall Street Video Edition Look at Essential Questions Video Complete the following

Workbook pgs. 16-19 Pg. 77 (FDA)

When done, finish up any of other workbook assigned pages

Grab Ch. 2 Study Guide