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