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2 Economic Systems
BIG IDEAS = Responsibility, Choices, Changes, and Relationships
Essential Questions:
– How do societies provide for people in a capitalist, socialist, and communist
economy?
– How do the characteristics of a modified free enterprise/capitalism work in the
US?
– What economic goals affect the roles of government, consumers, and
entrepreneurs in the US economy?
* Remember you are responsible for answering one of these essential questions at the end of this chapter as an assessment.
Why it matters
Understand: Economic systems govern WHAT goods and services to produce,
HOW to produce them and for WHOM to produce them. The US basic economic
decisions are made through the free interactions of individuals looking out for their
best interests.
1
LEARNING GOALS:
1. Explain why every society has an economic system to allocate goods and
services.
2. Explain the advantages and disadvantages of all economic systems.
(T,C,M and C,S,C)
3. Describe the characteristics of free enterprise.
4. Describe the roles of government, consumers and entrepreneurs play and
the goals in free enterprise capitalism.
What you need to Do and Be Skilled at:
• Read, comprehend, and summarize key information from text
collaboratively.
• Identify and provide examples of various economies with real world
applications. (T,C,M and C,S,C)
• Illustrate and explain economic systems and key concepts within the world
and a block buster movie.
2
Enter Lesson #1 Vocabulary KNOW
9 Vocab words
• economic system
• traditional economy
• command economy
• market economy
• market
• capitalism
• mixed economy
• socialism
• communism
3
Economic Systems
• All societies use an economic system to provide for needs and wants of their people.
– Traditional
– Command
– Market
• Most economies combine all 3.
• Three major economic systems exist:
4
Traditional EconomiesTraditional economies use ritual, habit, or customs to answer the basic questions of WHAT, HOW, and FOR WHOM to produce.
A traditional economy—use of scarce resources and economic activity is based on habit or custom.
• Advantages
–
–
–
• Disadvantages
–
–
–
5
Command Economies Command economies rely on a central authority to make most of the economic decisions.
A central authority makes the major decisions in a command economy.
• Advantages
–
–
• Disadvantages
–
–
–
–
–
6
Market Economies
In a market economy, consumers and businesses answer the questions of WHAT, HOW, and FOR WHOM to produce.
A market economy allows people to make decisions in their own best interest.
•Buyers and sellers exchange goods and services in a market.
•Market economies are based on capitalism, which means that the factors of production (C, E, L, L) are privately owned.
7
• Advantages
–
–
–
–
–
–
• Disadvantages
–
–
–
Exit Lesson #1
Market Economies (cont.)
8
Enter Lesson #2
Mixed Economies
Most economies in the world feature some mix of traditional, command, and market economies.
Most economies in the world are mixed economies.
•When political systems are considered with economic systems, the picture gets more complicated.
•An example is socialism and its extreme, communism.
•The type of political system in a mixed economy is less important than the way basic economic decisions are made.
9
• Advantages of a mixed economy
–
–
–
• Disadvantages of a mixed economy
–
–
Mixed Economies (cont.)
10
Economic and Social Goals of the US EconomyGovernment, entrepreneurs, and consumers share different goals in the US economy. (E5 EP)
• Economic efficiency =
• Economic equity =
• Economic security =
• Economic growth =
• Economic freedom =
• Full employment =
• Price stability =
11
Economic and Social Goals In the United States, we share several economic and social goals.
12
EXIT LESSON #2
Elderly & lower
income workers
want more economic
security & economic
equity
Businesses want
more economic
growth & economic
efficiency
Do we raise taxes
& use it to help new
businesses grow &
increase jobs?
Do we lower taxes to let
business & individuals
make more money to buy
more goods & services?
Enter Lesson #3 Vocabulary KNOW
8 Vocab words
• free enterprise
• voluntary exchange
• private property rights
• profit
• profit motive
• competition
• consumer sovereignty
• mixed or modified free enterprise economy
13
American Free Enterprise Characteristics of the US Economy
• In many parts of the world, capitalism has become the economic choice
• Capitalism allows private citizens to own and use the factors of production to generate profits
• The U.S. economy is based on free enterprise
• Capitalism and free enterprise are often used interchangeably, although meanings are different.
– Capitalism stands for the private ownership of resources
– Free enterprise is the unhindered use of privately owned resources to earn profits
14
Characteristics of Free Enterprise CapitalismThe US economy has 5 major characteristics of a free enterprise economy. (C, E, P, P, V)
• Competition =
• Economic freedom =
• Private property rights =
• Profit motive =
• Voluntary exchange =
15
The Role of the Entrepreneur Entrepreneurs are the driving force of the free enterprise system. They:
–
–
–
–
Entrepreneurs are both the spark plug & the catalyst of the free enterprise economy.
• Their search for profits leads to a chain of events that brings:
– New products
– Greater competition
– More production
– Higher quality
– Lower prices for consumers
16
The economy in the United States adapts to consumers wants.
•
•
•
•
•
The Role of the Consumer
17
The Role of the Government The economic role of the U.S. government is decided by its citizens.
The role of government stems from the desires, goals, and aspirations of its citizens.
• Government has become a: __________, __________, __________, and a __________
• In general, the role of government in the economy is justified whenever _________________________________________.
• An unintended consequence of government’s role is the emergence of the mixed or modified free enterprise economy.
• Some people prefer to have no government involvement in the economy—which is not possible.
• Services like a national defense & a system of laws & justice cannot be supplied by the private sector alone.
EXIT LESSON #318