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Chapter 2: Economic Systems

Exploring different economic systems

McCarley Buchanan

on 4 February 2013

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Transcript of Chapter 2: Economic Systems

McCarley Buchanan, Harper Stephens, Emily Sutphin, Paige Davis MIXED ECONOMY •What goods and services should be produced? Market-based economics system that allows some government involvement

Most modern economies are

The US:
has high levels of economic freedom
promotes free trade
(w/ some restrictions)
encourages foreign investment Chapter 2:
Economic Systems Centrally Planned Economys
•China- adopted central planning as the result of a communist revolution; gave farmers the chance to own more land and offered bonuses to factory managers as incentives to do good work
•Soviet Union focuses on heavy industry and military but shortages were common of food and others goods the people wanted
Disadvantages of centrally planned economies:
•1. Economic inefficiently
•2. No economic freedom
•3. Not much economic growth- entrepreneurship is discouraged
•4. No government equality •How should these goods and services be produced? •Who consumes these goods and services? KEY TERMS SECTION 4 KEY TERMS SECTION 2 KEY TERMS SECTION 1 1. Laissez-faire:

2. Private Property:

3. Mixed Economy:

4. Economic Transition:

5. Privatization:

6. Free Enterprise System: Gov. shouldn't interfere with marketplace

Property owned by individuals or companies not the government or the people as a whole

Market-based economics system that allows some government involvement

A period of time when a country changes from one economic system to another

Selling government business to individuals and then allowing them to compete in the market

System characterized by private/corporate ownership of capital goods 1. Economic System:

2. Factor Payment:

3. Profit:

4. Standard of Living:

5. Innovation:

6. Traditional Economy Structure of methods & principles a society uses to
produce and distribute goods and services

Income people receive in return for supplying factors of production

Amount of money a business receives in excess of its expenses

Level of economic prosperity

Process of bringing new methods, products or ideas into

System that relies on habit, custom, or ritual
to decide the 3 key economic questions KEY TERMS SECTION 3 1. Centrally Planned Economy:

2. Command Economy:

3. Socialism:

4. Communism:

5. Authoritarian:
Economic System in which the government makes all the decisions
on the three key economic questions

Another name for a centrally planned economy

Range of economic and political systems based on the belief that wealth should be distributed evenly throughout society

Political system in which the government owns and controls all the
resources and means of production and makes all economic decisions

Describes a form of government that limits individual
freedoms and requires strict obedience from
its citizens 1. Market:

2. Specialization:

3. Free Market Economy:

4. Household:

5. Firm:

6. Product Market:

7. Self-interest:

8. Incentive:

9. Competition:

10. Invisible Hand:

11. Consumer Sovereignty: Any arrangement that allows buyers and sellers to exchange things

Concentration of productive efforts of individuals & businesses
on a limited number of activities

answers 3 economic questions by voluntary exchange market-
what gets made, how it's made, and how much people can
consume of the goods & services produced

Person or group of people living in a single residence

Organization that uses resources to produce a product or service which it then sells

Exchange households purchase goods and services from firms

Individuals own personal gain; motivating force in the free market

Hope of reward or fear of penalty that encourages a person to behave in a certain way

Struggle among produces for the dollars of consumers

Term coined by Adam Smith to describe the self-regulating nature of the marketplace

Power of Consumers to decide what gets produced Traditional Economny Free Market Economy economic freedom is the chief characteristic of a free market economy
Individuals and businesses make their own decisions about what to buy or sell
Also called capitalist economies because the capital that entrepreneurs invest in businesses is a vital part of the system
Individuals and privately owned businesses own the factors of production, make what they want, and buy what they want • The oldest and simplest of economic systems
• There is little room for innovation or change- Slow to adopt new ideas/ technology
• Revolves around a family unit- Found in small, close communities
• Work is divided among gender lines- Boys follow their fathers’ and girls follow their mothers’ roles Markets eliminate the need for any one person to be self-sufficient
allows us to exchange things we want for things we have
•Leads to efficient use of capital, land, and labor
•Saves resources and avoids waste
•Markets would not be necessary without specialization Specialization Economic Goals •Different societies answer the three economic questions based on the importance they attach to various economic goals.
•Self-interest is the motivating force behind the free market, but competition is the regulating force Competition Traditional Economies
Continued: • People work to support the community, not just themselves or their family.
• Economically successful if they meet their own needs.
• Few have the mechanisms to deal effectively with disaster.
• May not have access to a wide range of goods- lack modern conveniences
• Have a relatively low standard of living Reasons Government Intervention
has increased Household Own factors of production-land, labor, and capital
Consumers of goods and services (Monetary Flow) Needs of public can't always be met in the market place
(i.e. public defense)

Gov. ensures all people benefit
(i.e. public schools)

Gov. protects property rights

Gov. ensures fair exchanges in
market Firms •Transform inputs, or factors of production, into outputs, or goods and services (Physical Flow) Advantages of the Free Market Additional Goals

-a free market economy responds efficiently to rapidly changing conditions Economic Growth Economic Freedom Economic Efficiency -workers work where they want, firms produce what they want, and individuals consume what they want -competition encourages innovation-free markets encourage growth -free markets offer a wider variety of goods and services than any other system because of incentives to meet consumers’ desires Consumers have power to decide what gets produced Producers provide only the goods and services that consumers want, and generally at prices consumers are willing to pay KEY TERMS KEY QUESTIONS SECTION 1 SECTION 2 SECTION 3 SECTION 4 the end
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