Economic Systems

WHAT IS ECONOMICS? DOES IT HAVE ANYTHING TO DO WITH YOU?

Economics

The branch of knowledge concerned with production, consumption, and distribution of wealth.

Needs cannot be avoided

Wants

Basic Problem of Economics

Scarcity: Lack of a particular resource (Usually natural resources) Oil Water Timber Coal

*We Have Unlimited Needs/Wants But Limited Resources

Questions economies MUST answer

What to produce?

How to produce it?

For whom to produce it for?

Types of Economic Systems

Traditional EconomyBased on traditions customs, and beliefsGrow and make their own goods. Barter and trade often used to transfer

goods rather than money Almost all goods and services are fully

used by the people who produced them.

Command Economy

Command EconomyAn economy in which production,

investment, prices, and incomes are determined by the central government.

The former Soviet Union is an example.

Market Economy

Decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.

INDIVIDUALS make all the economic decisions

INDIVIDUALS own the means of production

Free Markets

Freedom to… CompeteOwn PropertyBuy and Sell Workers to compete for jobsProfits: money a business has left after it has

paid expenses.

Supply and Demand

Demand Amount of

goods/services consumers are willing and able to buy at various prices.

Buyers demand more when prices are low

Supply Amount of

goods/services producers are willing to sell at various prices.

Businesses will produce more when they can sell for higher prices.

To increase profit…

Businesses have to find the highest price customers are willing to pay for a good or service.

Capitalism

Economic System in which the productive resources (farms, factories, machines, etc.) are owned by private citizens.

The U.S. Economic System

Mixed Economy- We mix elements from different economic systems.

Government regulation of business and enterprise Wage and labor lawsEnvironmental Protection/Regulation

Monopoly

A company that is the only one selling a product or providing a service.

Disrupts the free market system by eliminating competition.

American Business

Economics of Scale: The ability of large companies to produce many goods efficiently. Bigger is better. Apple

Conglomerate- A merger of business that produce, supply, or sell a number of unrelated goods.

Social Goals of Economic Systems

Economic Efficiency: How well scarce resources are used to produce goods to people for as little cost as possible.

Economic Equality

What is “fair?” Economic actions and policies have to be evaluated based on what people think is right or wrong. Distribution of income and wealth.Providing equal opportunity

Economic Freedom

Freedom for consumers o decide to spend or save their money.

Freedom for workers to change jobs and join unions

Freedom of individuals to establish new businesses or close old ones.

Economic Growth

Increasing production of goods and services over time.

Economic Security

Refers to protecting consumers, producers, and resource owners from risks that exist in society. What should be protected. Who should be protectedHow do we pay for protection

Economic Stability

Maintaining stable prices and full employment and keeping growth smooth and steady.

Avoid inflation or deflation of money.

Broad Social Goals of Economic Systems

Economic Efficiency: How well scarce resources are used to produce goods to people for as little cost as possible.

Political Cartoon Break!!!

Berkshire Hathaway

Homework!

Command vs. Market Economy