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Chapter 2:Chapter 2:Economic Systems andEconomic Systems andthe American Economythe American Economy

Introduction

•You probably have set some goals in your life, such as going to college, learning a trade, or opening a business.

• If you were to compare your personal goals to the goals of a North Korean teenager, the lists might vary widely.

•One of the reasons for this variance is that each of these persons lives in a community or nation with a different economic system, or way of determining how to use resources to satisfy people’s wants and needs.

Three Basic Questions

• What goods and services should be produced?

• How should they be produced?

• Who will get the goods and how will they be distributed?

Types of Economic Systems

Types of Economic Systems

• A traditional economy is based on customs and beliefs passed down for generations.

• A command economy is when government leaders answer the three basic questions.

Types of Economic Systems

• A market/capitalist economy is when individuals make the decisions.

• A mixed economy is a combo of market and command (private ownership of property and individual decision making are combined with govt. regulations).

6 Characteristics of the American Economy

6 Characteristics of the American Economy

• Adam Smith “Father of Capitalism” described an economic system called capitalism.

• Pure capitalism can be referred to as a laissez-faire system, or a system where people and businesses make economic decisions without government constraints.

• Smith’s ideas influenced the United States’ basic economic system.

Limited Role of Government

• A market economy offers a freedom of choice.

• A seller can choose to make or not make a product, and you can choose to buy it or not.

Freedom of Enterprise

6 Characteristics of the American Economy

• People can basically buy what they want.

• Demand will determine what is produced.

• Government sets safety standards.

• Government regulates price in some industries.

Freedom of Choice

6 Characteristics of the American Economy

• People produce goods to make a profit, or money left after costs of production are paid.

• The desire to make money is called profit incentive.

• There is also a risk of losing money.

Profit Incentive

6 Characteristics of the American Economy

• Private property is property held by individuals or groups rather than the federal, state, or local government.

• Individuals control how property is used.

• Private property is protected by the United States Constitution.

Private Property

6 Characteristics of the American Economy

• Different people can produce similar products and services.

• Competing businesses try to win customers with lower prices or better quality goods and services.

• Businesses need to use resources efficiently to stay competitive.

Competition

6 Characteristics of the American Economy

• In the United States, most industries allow anyone to start a new business.

Competition

6 Characteristics of the American Economy

Goals of Our Nation

Goals of Our Nation

• Nations have values, and they set goals for themselves based on those values.

• The United States is no exception.

• Its goals are evident in the supreme law of the land—the Constitution—as well as in its government policies and in the actions of people like you.

Goals of Our Nation

• Economic Freedom: to allow individuals to make choices

• Economic Efficiency: to use limited resources wisely

• Economic Equity: to exhibit fairness—protected by laws

• Economic Security: to provide protection for risks we cannot control

Goals of Our Nation

•Economic Stability: to reach a stable economy

•Economic Growth: to grow and expand the economy

•Trade-Offs Among Goals: achieving national goals require trade-offs.

Rights and Responsibilities

• People have the right to do what they want within the law.

• People have to behave responsibly in order for the system to work.

• People are responsible for understanding how government policies affect the economy and to cast their votes accordingly.