Economic Decision Making in Different Economic Systems

1. Aim: Why are economic decisions necessary? DO NOW: • What is relative scarcity? Why is it the basic economic problem? • PARADOX OF VALUE: Which items would be relatively scarce?(water-diamond paradox) • What is an opportunity cost?…trade-off? • What are some opportunity costs of each of the following economic choices? • Studying for a final exam • Buying a PS4 • Sleeping until 1PM on a Saturday • Taking a part-time job • Going to graduate school • Playing a high school sport (on any other demanding school activity)

2. Economic Decision Making • Identify an economic decision a town, city, state, or nation might be faced with. What opportunity costs and trade-offs are involved? • Why do individuals/societies facing similar economic choices often make different decisions about what to do? • What can people/societies do to cope with scarcity?

3. ECONOMIC DECISION-MAKING Identify an economic decision you have made recently. Describe the opportunity costs, trade-offs, and values involved in that decision.

4. Aim: Why are economic decisions necessary? DO NOW: • What is the distinction between an economic good/service and a free good or service? • What is the distinction between a consumer good and a capital good? • What does a production possibilities curve illustrate?

5. Production Possibilities Curve

6. Aim: Why are economic decisions necessary? DO NOW: • What does a production possibilities curve illustrate? (don’t just state the obvious) • What is the distinction between a need and a want? • How does advertising make wants seem like needs?

7. Economic Decision Making • PRODUCTION POSSIBILITIES CURVE • NEEDS V. WANTS • What role does advertising play with the above? • DURABLE V. NON-DURABLE GOODS • CONSUMPTION V. CONSPICUOUS CONSUMPTION • Have you (or anyone you know) ever engaged in conspicuous consumption? • CIRCULAR FLOW OF ECONOMIC ACTIVITY

8. CIRCULAR FLOW OF ECONOMIC ACTIVITY

9. Aim: How are economic decisions made in different economic systems? • What is the difference between a durable and a non-durable good? Provide an example of each. • What is conspicuous consumption? Is American society too materialistic? • What is the circular flow model?

10. Aim: MODEL ECONOMIC SYSTEMS TRADITION SYSTEM: an economic system in which the four basic economic questions are answered according to past customs and beliefs COMMAND SYSTEM: an economic system in which the four basic economic questions are answered according to central planners within the government MARKET SYSTEM: an economic system in which the four basic economic questions are answered according to individual consumers and producers acting in their own self-interest

11. AIM: MODEL ECONOMIC SYSTEMS STRENGTHS OF TRADITION SYSTEM: • Certainty of economic roles • Stable • Predictable • Less anxiety WEAKNESSES OF TRADITION SYSTEM: • Discourages new ideas/new ways of doing things • Stagnation • Lack of progress

12. AIM: MODEL ECONOMIC SYSTEMS STRENGTHS OF COMMAND SYSTEM: • Capable of dramatic change in short time • Plan for growth • Stable • Crash programs • Safety net WEAKNESSES OF COMMAND SYSTEM: • Does not meet wants and needs of consumers • Lacks incentives • Large bureaucracy • Little flexibility with day to day changes • No room for individuality

13. AIM: MODEL ECONOMIC SYSTEMS DO NOW: • What are the four basic economic questions? • How are these questions handled in each model economic system? • Do these economic models exist in reality? Explain.

14. AIM: MODEL ECONOMIC SYSTEMS STRENGTHS OF MARKET SYSTEM: • Able to adjust to change gradually • Individual freedom • Lack of government interference • Decentralized decision making • Variety of goods and services • Consumer satisfaction WEAKNESSES OF MARKET SYSTEM: • Must guard against market failure • Poverty • Business cycle • Services not provided • Extremes in wealth

15. AIM: MODEL ECONOMIC SYSTEMS ADAM SMITH, WEALTH OF NATIONS (1776) “…individuals acting naturally in their own self-interest…would bring about the greatest good for society as a whole…” An individual who “…intends only his own gain” is “led by an invisible hand to promote an end which was no part of his intention…by pursuing his own interest he frequently promotes that of society…” RE-STATE IN YOUR OWN WORDS To what extent, do you believe Adam Smith’s assessment of market forces is correct?

16. AIM: MODEL ECONOMIC SYSTEMS LOUIS BLANC, 19TH CENTURY FRENCH SOCIALIST “from each according to his ability to each according to his needs…” • Explain the meaning of Blanc’s statement. • Do you agree with this philosophy? Explain. • Would our capitalist based economy benefit from the inclusion of more “socialist” ideas? Explain.

17. AIM: MODEL ECONOMIC SYSTEMS (SUMMARY) 1. Identify the most important strength/weakness of each system. Explain. 2. Which system does the best job of responding to the needs of society? Explain.

18. AIM: What conditions must be met for a market economy to be effective? • Private Property • Economic Freedom • Voluntary Exchange • Competition • Profit Motive • HOW IS EACH ESSENTIAL? • WHAT ARE THE LIMITS OF EACH?

19. AIM: What is the role of the entrepreneur, consumer, and government in a capitalist economic system?

20. Aim: Is the consumer really “sovereign”? ADVERTISING’S INFLUENCE… • Bait-n-switch • Low balling • Chain referral selling • Fear • Responsibility • Sympathy • Special pricing

21. AIM: Is the consumer really “sovereign”? Do Now: CONSUMER INFLUENCE CAN MAKE OR BREAK A PRODUCT. • Can you think of a product that FAILED, despite a clever marketing campaign by producers, DUE TO CONSUMER INFLUENCE? • ? • ? • ?

22. Aim: How is economic performance evaluated? Do Now: • Take 5 – 10 minutes to finish advertising mini-project. • Remember assignment counts as a test grade.

23. Aim: How is economic performance evaluated? GOALS • Economic freedom • Economic Efficiency • Economic Equity • Economic Security • Full Employment • Price Stability • Economic Growth • Other? • Examples of each in our economy? • Which goals might conflict? Why? • How can conflicts be resolved? • What other goals might be included? • Some believe that economic freedom is the most important economic goal. Do you agree?

24. Aim: Which type of business organization is most important to the U.S. economy? DO NOW: • Most Americans place economic freedom above other economic values such as economic equity. Other countries regard equity as being more important. Do you agree or disagree? Explain.

25. Aim: Which type of business organization is most important to the U.S. economy? SOLE PROPRIETORSHIP • One owner Advantages: easy to organize, decisions can be made quickly, profits go to one person, pride in business Disadvantages: unlimited liability, limited life, limited resources, 70% fail within 5 years

26. Aim: Which type of business organization is most important to the U.S. economy? PARTNERSHIPS • Two or more owners Advantages: easy to organize, decisions can be made quickly, more resources Disadvantages: unlimited liability, limited life, share profits

27. Aim: Which type of business organization is most important to the U.S. economy? CORPORATIONS • Owned by stockholders • Legally has rights and duties of an individual • Charter run by Board of Directors • Elected by stockholders • Board of Directors oversees management of business • dividend

28. Aim: Which type of business organization is most important to the U.S. economy? CORPORATIONS Advantages: limited liability, unlimited life, ability to raise capital, ease of ownership transfer Disadvantages: difficult to start, double taxation, many stockholders means income from dividends is relatively small, owners do not directly control