1. Chapter 2:Economic Systems and Decision MakingSection 1: Economic Systems Section 2: Evaluating Economic Performance

2. Things to look for(section 1) What are the 3 main kinds of economic systems? Give an example of each kind of economic system. Give two examples of market locations. 3. Economic Systems Economic System an organized way ofproviding for the wants and needs of the peopleof a particular society. Three major kinds of economic systems existalthough most economies combine elements ofall three to form mixed economies. *The three major kinds of economic systems aretraditional economies, command economies, andmarket economies. 4. Traditional Economy In a society with a traditional economy, the useof scarce resources and nearly all economicactivity stems from ritual, habit, or custom. They also dictate social behaviors. Individuals cannot make their own decisions ofwhat they want or would like to have. Their roles are defined by the customs of theelders and/or their ancestors. 5. Traditional Economy *An example of a traditional economy would besocieties like the Australian Aborigines, the Mbutiin central Africa, or the Inuit of northern Canada. Their customs dictated that they share everythingwith one another, such as a bear or walrus thatthey hunted and killed. This provided meat, clothing, and shelter forentire villages for the extremely cold winters. Due to these customs, the Inuit survivedthousands of years. 6. Traditional Economy The main advantage of this economic system isthat every person in the society knows their role. There is little to no doubt of what is expected ofyou. The main disadvantage is that it tends todiscourage new ideas and new ways of doingthings. This lack of progress leads to stagnation and alower standard of living than other economicsystems. 7. Command Economy In a Command Economy, a central authoritymakes the major decisions about what, how, andfor whom to produce. In a pure command economy, the governmentmakes the major economic decisions. This means that the government decides ifhouses will be built, how they will be built, and forwhom they will be built. Most command economies limit private propertyrights. 8. Command Economy Most people are not allowed to own theirhomes, businesses, or other productiveresources. Individual rights or freedoms are also limited. For example, if the government wants moremathematicians, then the universities train moremathematicians. This limits personal choice. Government officials usually make choices thatfavor themselves (homes, vacations, cars, etc.). 9. Command Economy *Modern examples are hard to find but NorthKorea and Cuba are pure command economies. In the 1970s and 1980s, the Soviet Union wasthe biggest example of a command economy. In the former USSR, the State PlanningCommission determined needs, set goals, andallocated resources to the sector which they feltthe country most needed. 10. Command Economy The main advantage of this economic system isthat it can change direction drastically. The former USSR went from a rural agriculturalsociety to an industrial powerhouse in just a fewdecades by emphasizing industrial growth. Some disadvantages are that they ignore basicwants/needs of consumers, encourage meetingquotas rather than making good products, andneed a large decision-making bureaucracy that isunable to deal with minor day-to-day issues. 11. Market Economy In a market economy, people make decisionsthat are in their own best interest. A market is an arrangement that allows buyersand sellers to come together to exchange goodsand services. *A market can be a physical location such as afarmers market, or a virtual location such aseBay. Market economies are characterized by a greatdeal of freedom. 12. Market Economy Consumers determine what to produce by theirpurchases. Businesses are free to find the best method ofproduction when determining how to produce. The income that consumers earn and spend inthe market determines for whom to produce. They also have private ownership of resources. This economic system is based on capitalism(an economic system where private citizens ownthe factors of production). 13. Market Economy *Examples would include the United States,Japan, South Korea, Australia, Singapore, GreatBritain, and parts of Western Europe. Many of the above countries are among the mostprosperous in the world. While there are differences between thesecountries systems, they share the commonelements of markets and the private ownership ofresources to seek profits. 14. Market Economy Advantages include a high degree of individualfreedom, gradual adjustments to change overtime, a relatively small amount of governmentinterference, decision-making is decentralized, alarge variety of goods and services, and a highdegree of consumer satisfaction. Disadvantages are that this system does notprovide for everyone (very young, veryold, sick, etc.), may not provide enough basicgoods and services, and a high degree ofuncertainty. 15. Mixed Economy Most countries have a mixed economy (systemsthat combine elements of all three types). Examples are socialism and communism. In socialism, the government owns some but notall of the basic productive resources. Socialist governments also provide health care. Communism is an extreme form of socialismwhere all property is collectively, notprivately, owned. Communism rarely is practiced as designed. 16. Mixed Economy Examples include China and Norway One major advantage would be providing forsome people who might otherwise be left out. One major disadvantage is that the more servicesand higher benefits provided by the governmentoften lead to higher costs to the people. Germany, for example, offers many benefits butalso has one of the highest tax rates in the world. Historically, capitalism has proven more effectivethan either socialism or communism. 17. Q and A What are the 3 main kinds of economic systems? Traditional economies, command economies, andmarket economies. Give an example of each kind of economicsystem. Traditional Inuit of northern Canada, Command North Korea, Market United States Give two examples of market locations. Physical farmers market, Virtual eBay 18. Open-book/open-notebook Quiz Go to page 56 and answer numbers 17 20. This is a 100 point quiz, you may use your notesand book and, if need be, me. 19. Things to look for(section 2) What are the 7 major economic goals shared by most Americans? 20. 7 Economic Goals *The seven major economic goals shared bymost Americans:1. Economic Freedom2. Economic Efficiency3. Economic Equity4. Economic Security5. Full Employment6. Price Stability7. Economic Growth 21. Economic Freedom Americans traditionally value the freedom tomake their own economic decisions. Individuals like to choose their ownoccupations, employers, and uses for the money. Businesses like to choose where and how theyproduce. 22. Economic Efficiency Most people recognize that resources are scarceand that factors of production must be usedwisely. If resources are wasted, fewer goods andservices can be produced. This means that fewer wants and needs can besatisfied. 23. Economic Equity Americans have a strong tradition of justice,impartiality, and fairness. It is illegal to discriminate on the basis of age,sex, race, religion, or disability in employment. As a nation, we have developed a minimumwage. Minimum Wage the lowest legal wage that canbe paid to most workers. Most people believe that advertisers should notbe allowed to make false statements. 24. Economic Security Americans desire protection from such adverseeconomic events as layoffs and illnesses. This is why we have developed unemploymentbenefits when you lose your job due to no fault ofyour own. This is also why many companies have insuranceplans for their employees. Nationally, Congress has set up Social Security a federal program of disability and retirementbenefits that covers most working people. 25. Full Employment When people work, they earn income byproducing goods and services for others. Without jobs, people cannot support themselvesor their families. The goal of full employment even became lawwhen Congress passed the Employment Act of1946 in an effort to avoid the widespreadjoblessness before World War II. 26. Price Stability Another goal is to have price stability. If inflation occurs, workers need more money topay for food, clothing, and shelter. Inflation a rise in the general level of prices People who live on a fixed income find that billsare harder to pay and planning for the future ismore difficult. Fixed Income an income that does notincrease even though prices go up. 27. Price Stability High rates of inflation can discourage businessactivity. Interest rates on loans tend to increase with theprice of goods and services. When interest rates get too high, borrowing andspending by businesses can be discouraged also. 28. Economic Growth Most people hope to have a better job, a newercar, their own home, and a number of other thingsin the future. Overall growth enables more people to havemore goods and services. Since the nations population is likely toincrease, economic growth is necessary to meeteveryones needs. 29. Economic vs. Social Goals A society resolves the conflict between economic and social goals by comparing their estimate of the costs to their estimate of the benefits, and then they vote for political candidates who best represent those positions. 30. Q and A What are the 7 major economic goals shared bymost Americans?1. Economic Freedom2. Economic Efficiency3. Economic Equity4. Economic Security5. Full Employment6. Price Stability7. Economic Growth 31. Open Book/Open Notebook Quiz Go to page 56 and answer numbers 21 23. This is a 100 point quiz, you may use your notesand book And your magic 8 ball.