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

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

Complete pg. 13 Exploration; Both A and B

HW and some of BW tomorrow Page 55

Evaluating U.S. Economy Read Section 2

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/0-13-369833-5/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

HW Read Section 3 Finish up pg. 63 Activity