Understanding Economic Systems for Long-term Objectives

1. Chapter 2Economic Systems Long Term Objective (LTO) Explain the three economic systems

2. Slideshow is Online • MMHS • Teachers • Kraus, Connie • Econ Resources page • Chapter 2 Slideshow

3. Ch 2, Section 1Short Term Goals (STGs): • Identify the three key economic questions that societies/governments face. • Describe society values that determine how a country answers the Three Economic Questions. • Describe the Three Economic Systems and how they were/are influenced by society.

4. Three Economic Systems

5. Continuum (Varying Degrees of Involvement)

6. Free Market • NO Government control over prices, interest rates or production. “Invisible Hands” • NO welfare, food stamps, disability checks… • Business owners & Buyers decide the THREE ECONOMIC QUESTIONS: • WHAT to produce • HOW to produce • WHO consumes what is produced

7. Free Market Examples: Primitive cultures, some 3rd World nations. Explanation: Sellers decide if paint has harmful chemicals. Buyers: Goods & Services are consumed by those who have the $$ for it.

8. Mixed Market Economies • Ex: Most nations • United States • Mexico • China • Russia

9. Mixed Market Economies • Most nations’ government get involved in their country’s economy • Why? • Because society’s values have changed. • Too much poverty can lead to Revolts/overthrow of government leaders

10. Command Economies/Centrally Planned Economies • Government has highest level of control over production and prices than in Mixed Market. • Usually have a Dictator or Political System with only 1 Political Party-Communist. • NOT very efficient (except in focus area) • Few choices/less variety • Usually have no: • unemployment • homeless

11. Centrally Planned Economies • EX: • North Korea • Cuba • (less extent) Argentina

12. How do countries choose which system? • Depends on the values of their society. • Culture, religion and historical events play a part. • EX: • Some religions believe that you should help the poor. • Shirtwaist Factory Fire – led to workplace safety rules.

13. Pg 25, Figure 2.2 • Use the explanations in the Economic Goals table to rate these nations on how well you think they meet those goals.1=Lowest, 3=Average, 5=Hi

14. Generalities

15. Factor Payments • What/How you are paid for supplying • Factors of Production: • Land – Rent, Lease, Mortgage Payments • Labor - Wages • Capital – Pay Interest when you borrow $$ • Entrepreneurs earn PROFITS if the business makes money.

16. GROUP PROJECT: • Teams will create a poster on ALL THREE ECONOMIC SYSTEMS (NOT JUST ONE). • Poster must: • Answer HOW each system handled the 3 economic questions. • Pros of each system • Cons of each system • Examples of each system (country) • Cannot be smaller than sheet of construction paper • Suggest using a display board (foam core,…) • Cannot be rolled up.

17. GROUP PROJECT RUBRIC • Group Grade: Poster is complete, factual, neatly typed with titles, at least one visual, captions & labels. It must explain, not just list. Ex: Which system is most efficient AND WHY. • A-Meets all requirements • B-Minor mechanical flaw (Ex: spelling) • C-Missing/incorrect factual info (minor content) • D-Hard to Read/follow. Major content errors. • F-Incomplete

18. Group Project – Individual Grade • Each person is REQUIRED TO CONTRIBUTE – even if you’re absent, e-mail your portion to the Team Leader. • A = did all assigned work correctly and completely by deadline • B = sloppy • C = minor error/missing work • D – major error/missing work • F – did not meet deadline/did not do the work

19. Group Project • Due Friday, September 21stby beginning of class. • Worth 100 points – Group Grade • Worth another 100 points – Individual Grade • Teams: pick a Team Leader who is Organized & Excellent Attendance. That person will ASSEMBLE every member’s typed contribution. (NOT DO IT for them). • Divide the work evenly. Confirm what each person must do and when they have to get it to the Team Leader. Ex: Wednesday 7 pm • Have a Backup Person for each job. So, each person has a Primary Job and a Secondary Job.

20. Group Project • Be Problem Solvers • Technical Difficulties are NO excuse. • Don’t wait until the last evening before deadline to finish. Test out the digital file at least one day before deadline. • I will be here every day except Tuesday until 3:15 PM to help.

21. Tuesday – Sub Day • BE ON YOUR BEST BEHAVIOR • NO PASSES EXCEPT TO THE NURSE (AND ONLY IF YOU’RE ILL ENOUGH TO GO HOME) • All desks must be put back in rows • The room must be NEAT – No trash or paper on the floor. • ABSOLUTELY NO FOOD OR DRINKS – NOT EVEN GATORADE OR POWERADE.

22. Section 2:STGs Explain: • Why markets exist • Analyze circular flow model of free market economy • Understand the self-regulating nature of the marketplace (“invisible hands”) • Identify the advantages of a free market economy

23. A Market • Why does a Market exist? • Exists because no one can produce all of the goods and services that he/she needs. • What is a Market? • Where buyers and sellers exchange goods and/or services

24. A Market • Allows people to specialize in producing goods or services that they are the best at making/providing

25. Free Market Economy • The type of economy that was most common centuries ago • The original type of economic system • See previous slides

26. Circular Flow Modelof a Free Market Economy • Pg 30, Figure 2.3 • Answer the following questions: • How does $ flow FROM households to firms? • How does $ flow FROM firms to households? • When firms make more $ than expenses, the firm makes a ______. • You provide labor and get _____.

27. Invisible Hands • Used to explain the efficient, self-regulating nature of the Free Market • Theory by Adam Smith • Explain how Self-Interest and Competition make the Free Market work. (Write in pencil in your notebook. We’ll check the answer in 5 minutes. Work with a partner.)

28. Free Market – Advantages (Pros) • Economic Efficiency • Economic Freedom • Economic Growth • Widest Variety of Goods & Services because firms compete to provide what sells. So, firms specialize to meet their customer’s needs/wants. Customers decide what is produced (buy what they want/do NOT buy other items). This is CONSUMER SOVEREIGNTY.

29. Ch 2, Section 3Centrally Planned Economies(Command Economies) • STGs • How is it organized? • Analyze the pros/cons of a Command Economy. • Give pros/cons of the former USSR.

30. Centrally Planned Economies(Command Economies) • The Government decides the Three Economic Questions • No Consumer Sovereignty • Usually under an Authoritarian Regime

31. Socialism and Communism • Socialism – • May have a Democratic government • Less autocratic than Communism • Still have a High Degree of Government Control over the economy

32. Socialism and Communism • Communism • All ECONOMIC & POLITICAL POWER is held by a Central Government • Tend to spend more $ on Guns (Capital Goods) than Free Market and Mixed Market • Little/no incentive for workers to produce more • Can excel in their focus industries: • USSR – steel output, tractors, ballet, symphonies

33. Ch 2, Section 4Modern Economies • STGs • Explain the rise of Mixed Economic Systems • Interpret a Circular Flow Model of this system • Compare the countries along the Continuum • Explain the role of Free Enterprise in the U.S. economy

34. The Rise of Mixed Markets • Economic Systems have evolved from Free Market systems • All have pros/cons • Most nations are Mixed Markets

35. Control vs Economic Freedoms • Nations try to balance their nation’s need for government control and economic freedoms: • Examples • Safety Nets = more taxes • Less Taxes = Fewer/Less Safety Nets • No homelessness – Govt owns ALL private property • No unemployment – Govtdecices who works where • Paying too much for gas, cable, electricity,..? • Should govt regulate prices? • Should govt own the industries?

36. Pg 43, Figure 2.5 Continuum of Economic Systems & Nations NOTE: • Hong Kong is less of a Free Market than when this book was printed. • Hong Kong is a part of China. Since the lease with Britain ended, China has started to exert more control. • Hong Kong is still less controlled than mainland China. • China has now moved farther away from Centrally Planned. It is privatizing – factories are now owned by individuals in most industries.

37. Wrap Up • Economic Systems are still changing • Based on changing values/demands of its people • Laissez Faire – No govt intervention in the market • Has resulted in many negatives for consumers & workers • Most profitable (usually) for business • Can restrict growth in some industries • Ex: India – sewage treatment lacking due to lack of govt intervention

38. Wrap Up • Free Enterprise – Allowing people to start and control their own business. • Major Role in U.S. development • Balancing Act: • Allowing enough freedom for businesses while still protecting workers and consumers • Protecting U.S. businesses (against foreign businesses who have lower costs) or not.