Chapter 2 Notes

Economic Systems

Economic System

• The method used by a society to produce and distribute goods and services

What goods and Services should be produced?

• Each decision a society makes comes with opportunity costs

• We have to decide, besides basic needs, what to devote to national defense, education, public health and welfare, or consumer goods.

How should goods and services be produced?

• How should we produce energy? Should teachers have classes of 20 or 50? Should we produce food on large corporate farms or small family farms?

• Check out the chart- • the top is before

modern equipment

Who consumes goods and services?

• Factor Payments- income given to people who supply the factors of production- land, labor, capital or entrepreneurship

• How are goods distributed?

• Who gets an expensive car and who rides the bus?

• It is decided by how societies choose to distribute income

Capitalism

• Based on Adam Smith’s idea

• Supply and demand• Free enterprise• Originally Laissez Faire-

leave businesses alone• Some government

regulation (air and water pollution)

Market Economy

• Economic decisions are made by individuals and are based on exchange or trade

• Also called free markets, or capitalism

Communism

• Ruled by a dictator• One party- Communist• The government tells

workers what to produce

• Leads to shortages• Everyone is equal- in

being oppressed (unless you're in the government

Command Economy

• Centrally planned economy- the central government alone decides how to answer all 3 economic questions

• A central authority is in “command” of the economy

• ( Communism)

Socialism

• Karl Marx’s idea that all workers were equal and they were the ones that would run the factories and fields

• Land to be re-distributed by wealthy landowners so everyone would have land

• Leads to Communism because this does not work with so many people involved

Mixed Economy

• Most modern economies are mixed- a combination of traditional, market and centrally planned economies

Economic Security

• We want to know that every time we go to the store, we can get what we need or get gas etc.

• Safety Net- government programs to help out when things get financially rough

• Standard of living- level of economic prosperity

• These will differ among communities and areas of the nation and the world.

• Sometimes price of good increases and your paycheck doesn’t

Economic Equality

• What’s fair?• Many people believe in

equal pay for equal work (women)

• Lawyers still make more than nurses who work longer hours and do harder work

Banking

• What to Know:• Direct deposit• Bank cards• Credit cards• Overdraft protection• Automatic transfers• Online banking

• How to apply:• Money to deposit• Identification• Social Security Number

(SSN)• Signature• (job to make money to

deposit) ;)

Fees (of course