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Economic Systems

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Ben King

on 10 September 2013

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Transcript of Economic Systems

Chapter 2: Economic Systems
Answering the 3 economic questions
The Free Market
Why The Market Exists

Free market Economy

Self Regulating nature of the market

Advantages of the Free Market
Centrally Planned Economies
The government answers the key economic questions.
The government owns both land and capital.
Decides what items to produce, how to produce, and who gets them.
Economic Systems
What Goods and Services Should Be Produced?
How many resources should be devoted to defense, education, or consumer goods?
Why The Market Exists
Markets allow buyers and sellers to exchange goods

We needs markets because we cannot produce every good we need
Efficiency: Workers lack the incentive to work faster and produce more.
Freedom: Sacrifice individual freedoms in order to pursue societal goals.
Growth: Discourage change. Managers follow a government plan.
Equity: People suffer shortages and poorly made goods.
Additional Goals: Guarantee jobs and income.
Two Communist Economies
China and Russia
Russia sought to build national power and prestige.
China still owns firms in major industries.
China has more ecnomic freedom now a days.
How Should Goods and Services Be Produced?

Societies must decide how to produce services and goods.
Questions include:
What fuel to use?
Each decision involves trade-offs

Specialization is all the production focused on 1 product

This leads to efficent use of Land Labor and capitol
Who Can Consume These Goods and Services?
Socialism and Communism
S: A range of economic and political systems based on the belief that wealth should be evenly distributed throughout society.
Stage between Capitalism and Communism.

C: The central government owns and controls all resources and means of production and makes all economic decisions.
Writings of Karl Marx.
How can people meet their needs?
Who gets a house and who gets an apartment?
Factor Payments

Economic Goals
Societal Values
The amount of government involvement varies from nation to nation
Economic Efficiency
Economic Freedom
Economic Security
Economic Equity
Economic Growth
Like households, governments purchase goods and services from firms in the product market
Some Americans argue that there is a need for more government services and stricter regulation of business
The Rise of Mixed Economics
Resources are always scarce, so societies must try to maximize what they can produce using resources they have.
If a society can accurately assess what its people need and want, it increases its economic efficiency.
Every economic system has problems.
Jason Seale, Phillip Ray, Reid Sisk, and Ben King
Governments play a role in the economy by protecting property rights like the fourth and fifth amendment
Mixed Economies
Free Market Economy
This answers the three key economic questions

Voluntary exchange in Markets
Market Economy Flow Model

Societies choose who is free and who is not around the world.
America is generally free.

Safety net - set of programs to protect people who face unfavorable economic conditions such as layoffs, injuries, or natural disasters.
Most nations also provide some level of base income for retired persons to ensure that they can support themselves.
Should everyone get the same share of the goods and services?
Should one's consumption depend on how much one produces?
Deals with fairness
A nations economy must grow if people are going to have more income.
Standard of living - level of economic prosperity
Innovation - the process of bringing new methods, products, or ideas into use.
Economic goals can always create conflict. Choosing one goal will mean you have to limit another goal.
Traditional economies have little potential for growth or change
Traditional Economies
Traditional economy - Relies on habit, custom, or ritual to answer the three questions.
Little room for innovation or change
Revolves around family
Boys take up occupations that their fathers did, while girls follow those of their mothers
Found in communities that tend to stay relatively small and close.
Usually successful if they meet their own needs.
May not have access to wide range of goods or services, including technology.
Centrally planned economies limit freedom
Self Regulating Market
The market is kepted in check by Self -Interest and Competition
Government in the Factor Market
Firms purchase land, labor, and capital from households in the factor market
U.S. gov pays 2.7 million employees $152.2 billion a year for their labor
Every time a police officer gets payed, a government is buying labor in the factor market
This is called "The Invisible Hand" of the market
Advantages of the Free Market
Economic Efficency
Economic Freedom
Economic Growth
Consumers choose what is Produced
Full transcript