Economics Guided Notes Chapter 2 – Economic Systems and Decision Making

Section 1: Economic Systems Introduction

• The survival of any society depends on its ability to _____________________________________________________ ___________________________________________________________.

• Because _________________________________________________, decisions concerning WHAT, HOW, and FOR WHOM to produce must be made.

• All societies have an economy, or economic system–__________________________________________________ ________________________________________________________________________________________________________________.

• The way in which these provisions are made determines _______________________________________________ ____________________________________________________________.

• Three major kinds of economic systems exist–___________________________________________________________. • Most ____________________________________________________________________________ with one of these systems.

Traditional Economies

• In a ___________________________________ economy, _____________________________________________________________ defined by custom.

• Examples include the central ______________________________________________________________________________ ______________________________________________________.

• The advantages of a traditional economy is that __________________________________________________________ and there is little uncertainty about _______________________________________________________________________ ___________________________________________.

• A disadvantage of a traditional economy is the ___________________________________________________________ ________________________________________. This leads to a ______________________________________________________ than in other societies.

Command Economies

• In a command economy, a __________________________________________________________________________ WHAT, HOW, and FOR WHOM to produce.

• Command economies include ______________________________________________________________________________ _________________________________________________________.

• There are two advantages to a command economy: _____________________________________________________ _________________________________________________________________________________________________________________________________________________________________________________________________________________________________.

• There are several disadvantages to a command economy: consumer needs __________________________ ________________________; ______________________________ is not rewarded; the necessary ____________________ _______________________________________________________; little flexibility to ___________________________________ _____________________________; and individual _________________________________________________________________.

Market Economies

• In a market economy, _______________________________________________________________________ WHAT, HOW, and FOR WHOM to produce. In each market transaction, the ___________________________________________ _______________________________ ensuring that _________________________________________________________________ the goods and services that consumers want to buy.

• Examples include the _______________________________________________________________________________________ ________________________________________________________________________________________________________________.

• There are numerous advantages to a market economy: the ability to _________________________________; the high _________________________________________; the small _________________________________________________; the ability __________________________________________________; the _____________________________________________ created; and the high degree ___________________________________________________.

• Disadvantages to a market economy include _____________________________________________________________ _________________________________________. Markets also do an inadequate job of ___________________________ ________________________________________________________________________________________________________________. Citizens of a market economy must also __________________________________________________________________ ________________________________________________________________________________________________________________.

Figure 2.1Comparing Economic SystemsFigure 2.1Comparing Economic Systems

Economics Guided Notes Chapter 2 – Economic Systems and Decision Making

Section 2: Evaluating Economic Performance Introduction

• Every economic system has goals such as ________________________________________________________________ ________________________________________________________________________________________________________________.

• Goals are important because _______________________________________________________________________________ ________________________________________________________________________________________________________________.

• If the system falls short, then we may demand ___________________________________________________________ _______________________________________________________.

Economic and Social Goals

• Economic freedom, or the __________________________________________________________________________________ ____________________________________, is a goal highly valued in the United States.

• Economic efficiency means that resources _______________________________________ and that the _________ ________________________________________________________________________________________________________________.

• Economic equity is the social goal that explains __________________________________________________________ ______________________________________________________.

• Economic security is a social goal that results in _________________________________________________________ ________________________________________________________________________________________________________________.

• Most economic systems strive for full employment, or __________________________________________________ ______________________________________________________.

• Price stability, or _____________________________________________, is important to anyone trying to provide basic necessities ___________________________________________ and for anyone _______________________________ ________________________________________________.

• Economic growth is an important goal because __________________________________________________________ and existing populations ___________________________________________________________________________________.

Trade-Offs Among Goals

• When goals are at odds, ____________________________________________________________________________________ ________________________________________________.

• Most of the time, ____________________________________________________________________________________________ ________________________________________________________________________________________________________________.

• The flexibility of the American _____________________________________________________________________________ ________________________________________________.

Economics Guided Notes Chapter 2 – Economic Systems and Decision Making

Section 3: Capitalism and Economic Freedom Introduction

• A market economy is normally based on a system of capitalism, ______________________________________ ________________________________________________________________________________________________________________.

• Free enterprise is another term used ____________________________________________________________________. • In a free enterprise economy, ______________________________________________________________________________

______________________________________________________. Competition and Free Enterprise

• Capitalism is a market economy in which __________________________________________________________________, in a free enterprise system, there is ________________________________________________________ and businesses are _________________________________.

• With economic freedom, people and businesses _________________________________________________________. • The result of voluntary exchange, in which buyers and sellers are _____________________________________

______________________________________________, results in both buyers and sellers believing that the good or service obtained __________________________________________________________________________________________.

• Private property rights _____________________________________________________. Any rewards _______________ __________________________________________________.

• The profit motive _______________________________________________ and is largely responsible for __________ ________________________________________________________________________________________________________________.

• Competition among sellers _________________________________________________________________________________. The Role of the Entrepreneur

• Entrepreneurs use _______________________________________________________________________ to make a profit. • When an entrepreneur is successful, ___________________________________________________. Successful

entrepreneurs _______________________________________________________________________________________________. • The entrepreneur’s search for profits ____________________________________________________________, greater

_________________________________, more _______________________________, higher _______________________________, and __________________________________ for consumers.

The Role of the Consumer

• The __________________________________ in a free market economy. __________________________________________ describes the role of the consumer as ruler of the market.

• Consumers in the American economy express their wants ______________________________________________ __________________________. The dollars they spend are the “votes” ________________________________________ ________________________________________.

The Role of the Government

• As a protector, a _____________________________________________________________________________________________ meant to prevent ____________________________________________________________________________________________.

• Governments are both __________________________________________________. The U.S. government provides education and welfare and is the second largest consuming group in the economy after consumers.

• As a regulator, the government ____________________________________________________________________________. • The promoting of national goals is an important role of any government. In the United States,

achieving economic equity and security has ______________________________________________________________ ________________________________________________________________________________________________________________.