Post on 06-Jan-2018
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BEING AN ECONOMICALLY SMART
CITIZEN
Types of Economies Every nation’s economy must answer four basic
questions: 1. What goods and services and how much of
them should be produced? -if more of one item is produced then less of
something will be produced because of scarcity 2. Who should produce them? -different people do different jobs (career choice) 3. How should they be produced? -what combination of available resources will get
the job done at the least price 4. Who should share in their use? -distribution of goods and services throughout all
members of an economic system
Traditional System Answers the four basic questions
according to tradition Things are done as they have always
been done Economic decisions are based on
customs, beliefs, religion, and ways of doing things that have been handed down from generation to generation
Found in very limited parts of Asia, the Middle East, Africa, and Latin America
Command System The individual has very little influence over how
the four basic questions are answered The government controls the factors of
production and makes all decisions about their use
The government decides how resources are used at each stage of production, the distribution of goods and services, and who will do what
The government guides people into certain jobs through a series of regulations about education available to different groups of people
Market or Capitalist System
No government intervention Individuals own the factors of production
and decide the answers to the four basic questions
Economic decisions are made through free interaction of individuals looking out for their own best interest
The market is not a place, but a freely chosen activity between buyers and sellers of goods and services
Buyers and sellers choose to do business with those who best satisfy their needs
The exchange of goods can be local to worldwide
Producers in the pure market system will decide how to use their resources based solely on market signals from the market
People are also free to sell their labor- they make take, refuse, or change jobs whenever they choose
Mixed Economic System With the exception of the traditional system,
almost all economic systems today are mixed
Have characteristics of the command and pure market economies
The economy can favor one system over the other
Example: China is a mixed system that favors the command over the market, whereas, the United States favors the market over the command
What is the role of the citizen in the economy?
We must be informed Have an understanding of what part
the citizen plays Have an understanding of how the
citizen affects the economy
The US economy -supply, demand, and prices help people make
decisions and allocate resources -most decisions are made by individuals that are
looking out for their own best interest -the choices that the consumers make affects the
products that businesses make -the products offered and their prices affects the
decision the consumer makes -based on the capitalist system where the private
citizen owns most, if not all, means of production -also based on free enterprise where businesses
are allowed to compete for profit with little interference from the government
1. Keeping Informed About how the economy works and
developing an awareness of other features of the economy
-reading, watching and listening to news reports
-gathering information about the activities of business and government
2. Understanding Incentives
Incentives influence economic behavior
Knowing how the incentives work helps individuals make wise choices
Examples: price, grants, bonus pay, lower credit card interest, etc.
3. Understanding the Role of Government
The role of government should be to maintain competitive markets while not intervening for the benefit of one group over another
Provide services that the private sector does not provide such as defense and a justice system
Make markets competitive, which forces business to use resources more efficiently while providing a low price
Rewards or punishes for certain actions -carrots dangled are the incentives that the
government gives, whereas, sticks are the taxes used to discourage actions
-Examples: carrots- grants for college sticks- tax on alcohol
Making Wise Choices When you make decisions based on
opportunity cost, you are making a rational decision, where you choose the greatest value available to you
By purchasing goods and services that can best satisfy your wants for the lowest cost
Not every one makes the same decision: rational choice is perceived
Use scarce resources wisely