economics: chapter 2: economic systems and decision making
TRANSCRIPT
Economics: Chapter 2:Economics: Chapter 2:Economic Systems and Economic Systems and
Decision MakingDecision Making
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
An Economic SystemAn Economic System is a set of rules is a set of rules that govern WHAT goods and that govern WHAT goods and services to produce, HOW to produce services to produce, HOW to produce them, and for WHOM they are them, and for WHOM they are produced.produced.
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
Economic Systems
Traditional Command Market
ADVA
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Sets forth certain economic roles for all members of the community.Stable, predictable, and continuous life.
Capable of dramatic change in a short time.Little uncertainty over choice of career, where to work, or losing a jobMany basic education, public health, and other public services available at little or no cost.
Able to adjust to change gradually.Individual freedom for everyone.Lack of government interference.Decentralized decision-makingIncredible variety of goods and services.High degree of consumer satisfaction.
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
DI
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A
D
V
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Discourages new ideas and new ways of doing things.Stagnation and lack of progress.Lower standard of living.
Does not meet wants and needs of consumers.Lacks effective incentives to get people to work.Requires large bureaucracy which consumes resources.Has little flexibility to deal with small, day-to-day changes.New and different ideas discouraged, no room for individuality.
Rewards only productive resources; does not provide for people too young or too old or too sick to work.Workers and businesses face uncertainty as a result of competition and change.Does not produce enough public goods, such as defense, universal education, or health care.Must guard against market failures.
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
DEFINITION
The allocation of scarce resources, and nearly all other economic activity stems from ritual, habit, or custom. Examples -- Australian Aborigines and the Inuit of Northern Canada
A central authority makes most of the WHAT, HOW, and FOR WHOM decisions (made by government).Examples – North Korea, Cuba, and former Soviet Union
People and firms act in their own best interest to answer the WHAT, HOW, and FOR WHOM decisions.Examples – U.S., Canada, Japan, Germany, and Great Britain
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
Evaluating Economic PerformanceEvaluating Economic Performance
The social and economic goals of U.S. society includes: The social and economic goals of U.S. society includes: Economic FreedomEconomic Freedom Economic EfficiencyEconomic Efficiency Economic EquityEconomic Equity Economic SecurityEconomic Security Full EmploymentFull Employment Price StabilityPrice Stability Economic GrowthEconomic Growth
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
When goals conflict, society When goals conflict, society evaluates the costs and benefits of evaluates the costs and benefits of each in order to promote one goal each in order to promote one goal over another; many election issues over another; many election issues reflect these conflicts and choices.reflect these conflicts and choices.
People’s goals are likely to change in People’s goals are likely to change in the future, as our economy evolves.the future, as our economy evolves.
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
Capitalism and Economic FreedomCapitalism and Economic Freedom
CapitalismCapitalism is a competitive economic is a competitive economic system in which private citizens own system in which private citizens own the factors of production.the factors of production.
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
5 Characteristics of Capitalism (Free Enterprise) 5 Characteristics of Capitalism (Free Enterprise) SystemSystem
1. Economic Freedom1. Economic Freedom 2. Voluntary Exchange2. Voluntary Exchange 3. Private Property Rights3. Private Property Rights 4. Profit Motive4. Profit Motive 5. Competition5. Competition
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
The The entrepreneurentrepreneur is the individual who is the individual who organizes land, capital, and labor for organizes land, capital, and labor for production in hopes of earning a profit. ** production in hopes of earning a profit. ** The profit motive is the driving force in The profit motive is the driving force in capitalism.capitalism.
In Capitalism, firms are in business to In Capitalism, firms are in business to make a profit. To do this they must offer make a profit. To do this they must offer products consumers want at competitive products consumers want at competitive prices.prices.
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
Consumer SovereigntyConsumer Sovereignty states that the consumer is states that the consumer is the one who decides WHAT goods and services to the one who decides WHAT goods and services to produce.produce.
The national government plays the role of protector, The national government plays the role of protector, provider, and consumer, regulator, and promoter of provider, and consumer, regulator, and promoter of economic goals.economic goals.
The U.S. has a The U.S. has a mixed economymixed economy or a modified private or a modified private enterprise economy, in which its citizens carry on enterprise economy, in which its citizens carry on their economic affairs freely but are subject to some their economic affairs freely but are subject to some government intervention and regulation.government intervention and regulation.
Chapter 2: Economic Systems and Chapter 2: Economic Systems and Decision MakingDecision Making
The EndThe End