ECONOMIC SYSTEMS AND THE AMERICAN ECONOMY

Chapter 2

SECTION 1 ACTIVITY

What are your long term and short term goals?

Keep track of everything you buy and how much you spend on those items/services. (Ask for receipts and record on the activity chart.)

ECONOMIC SYSTEM

Definition: A way in which people, businesses, and governments use resources to satisfy wants and needs

The means by which a society produces and distributes goods and services

ECONOMIC SYSTEM: 4 BASIC QUESTIONS Answered based on views

and wants of people1. How should goods and

services be produced? For every good and service

produced, there is always a trade-off possible among the available factors of production

What combinations of available resources will get the job done for the least cost?

i.e. farmer : 10 people with horse-drawn plows OR 1 person with a tractor???

ECONOMIC SYSTEM: 4 BASIC QUESTIONS2. What and how much should be

produced? World of scarcity and trade-offs If more of one thing is produced, less of

something else will be produced i.e. farming: more corn = less of other crops

3. Who should produce what? Different people do different jobs Career choice relates to who should do what

ECONOMIC SYSTEM: 4 BASIC QUESTIONS4. Who should share what is

being produced? Distribution of income: money

payment for work, the amount of healthcare, education, food each person receives, distribution of goods and services among all members of an economic systemTHIS DETERMINES TYPE OF

SYSTEM!!!

ECONOMIC SYSTEM: 4 BASIC QUESTIONSREFERENCE INDIVIDUAL GOALS: How will you go about achieving these

goals?**Identify steps to achieving the goals!

QUESTION:How is this process difficult for an entire

national, or even international, economy? What choices would be most difficult to make?

TYPES OF ECONOMIC SYSTEMS1. Traditional

System2. Command or

Controlled System

3. Market or Capitalist System

4. Mixed Economic System

Way too confusing!!! But you get

the idea

TYPES OF ECONOMIC SYSTEMS

1. Traditional System System in which economic decisions

are based on customs, beliefs, and ways of doing things that have been handed down from generation to generation

Things are done “the way they have always been done”

Exist in: parts of Asia, the Middle East, Africa, and Latin America

TYPES OF ECONOMIC SYSTEMS2. Command or Controlled

System System in which the government

controls the factors of production and makes ALL decisions about their use (controlled economy)

Government may be one person, small group, or larger

Exists in: North Korea, parts of China, Cuba, Venezuela, etc.

TYPES OF ECONOMIC SYSTEMS3. Market or Capitalist System

A system in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own best interests – THE GOVERNMENT DOES NOT INTERVENE

MARKET: freely chosen activity between buyers and sellers of goods and services

Do business with those who best satisfy their needs and wants

Producers decide how to use their goods and services based on signals from the market

People may sell their labor as they wish DOES NOT CURRENTLY EXIST IN ANY COUNTRY

(Did exist in historical U.S.A.)

TYPES OF ECONOMIC SYSTEMS4. Mixed Economic System

System combining characteristics of more than one type of economy with others so that the mix varies and the economic system created leans more toward one pure type than another.

Exists in: US, European Union, Australia, S. Korea, Canada (lean capitalist); parts of China, Russia, and parts of S. America (lean command system)

ACTIVITY BREAK.,. 10 POINTS 1. Of the three major systems, name one

positive and one negative of each. 2. What blend do you think would be the

best blend in a Mixed Economy? List at least 4 characteristics (keep them ECONOMIC in nature) and tell me why you think they would be beneficial.

3. The definition of “Mixed Economy” states that it typically leans toward one of the other major systems. Which way does your “ideal” economy lean? Explain your answer.

UNDERSTANDING PERCENTAGES & DISCOUNTS

Percent: parts per hundred

Example: Sales tax = PA 6% (.06)Ex. #1MP3 Player cost $32,32 x .06 = 1.92Tax = $1.92Cost + Tax = Total$32 + $1.92 = $33.92

Figuring Percentages: to find percentage, divide price you pay by original price.

Ex. #2Boots are 35% off of original price of $48.48 x .35 = 16.8048 – 16.80 = 31.20Sales Price = $31.20Savings = $16.80

UNDERSTANDING PERCENTAGES & DISCOUNTS

Percent: parts per hundred

Example: Sales tax = PA 6% (.06)Ex. #1MP3 Player cost $32,32 x .06 = 1.92Tax = $1.92Cost + Tax = Total$32 + $1.92 = $33.92

Figuring Percentages: to find percentage, divide price you pay by original price.

Ex. #2Boots are 35% off of original price of $48.48 x .35 = 16.8048 – 16.80 = 31.20Sales Price = $31.20Savings = $16.80

UNDERSTANDING PERCENTAGES & DISCOUNTS

Percent: parts per hundred

Example: Sales tax = PA 6% (.06)Ex. #1MP3 Player cost $32,32 x .06 = 1.92Tax = $1.92Cost + Tax = Total$32 + $1.92 = $33.92

Figuring Percentages: to find percentage, divide price you pay by original price.

Ex. #2Boots are 35% off of original price of $48.48 x .35 = 16.8048 – 16.80 = 31.20Sales Price = $31.20Savings = $16.80

CHARACTERISTICS OF AMERICAN ECONOMY (SECTION 2.2)

What role does government play in your school life? (School Regs???)

Free Enterprise with some Regulation 6 Characteristics

1. Little or no government control2. Freedom of enterprise3. Freedom of choice4. Private Property5. Profit Incentive6. Competition

CHARACTERISTICS OF AMERICAN ECONOMY CHARACTERISTICS

Interrelated and Present in American Economy

People work for own self-interest (not the interest of the state or party)

“Invisible Hand” (Adam Smith 1776) – the effect of competition in guiding individuals toward working for their own self-interest, therefore achieving the maximum good for society. (American Dream)

WHY DO WE FIGHT FOR OUR NATION IF WE ARE MOTIVATED FOR SELF-INTEREST?

AMERICAN ECONOMY

Role of the Government Capitalism – economic system in which private

individuals own the factors of production and decide how to use them within the limits of the law. (market economic system and free enterprise)

Ideal system according to Adam Smith, has never existed in its purist form

Influenced American founders who limited government mainly to defense and keeping peace

This has changed significantly since the 1880s in regulating business and providing public services

AMERICAN ECONOMY

Role of the Government Continued…

Profit – money left over after all the cost of production have been paid

Cost: Includes wages, rent, interest, taxes, & materials Government at some level owns property

i.e. post offices, government buildings, fire/police, water/sewer

Eminent Domain: 5th Amendment: government cannot take private property away to expand its economic role (or for public use without just compensation – must pay owner fair price)

AMERICAN ECONOMY

Freedom of Enterprise Free Enterprise System: system in which

individuals own the factors of production and decide how to use them within legal limits

Your abilities and resources will help determine the good or service to produce, the quantity, & methods of production

No guarantee of success – may lose money Legal limits = i.e. age, # hours worked

AMERICAN ECONOMY

Freedom of Choice Other side of Free Enterprise Buyers make decisions about what should be

produced Success or failure of a good or service in the

market place depends on individual freedom of choice –You can buy what you want to buy;

Government has intervened in some areas to protect the buyer. i.e. 1) standards for autos, toys and appliances 2) regulate prices to industries where there are only a few companies (public utilities)

AMERICAN ECONOMY

Private Property Whatever is owned by individuals or

groups rather than federal, state, or local government.

Constitutional Guarantee Can buy what you can afford and control

how it is used, within the law If you own a business, you can personally

make the profit (not the government).

AMERICAN ECONOMY

Profit Incentive Desire to make money that motivates people to

produce and sell good and services that other want to buy

If no one buys what a seller produces, there is no profit

Risk of failing is part of free-market enterprise Some industries are so large, that if they failed

it would seriously damage the economy as a whole and put thousands out of work. Example: Chrysler, Farmers, Bank of America

AMERICAN ECONOMY

Competition The rivalry among producers and sellers

of similar goods to win more businesses by offering lower prices or better quality

Number of competitors affect price of product therefore the higher number of competitors, the lower the prices (or the opposite) i.e. cars

AMERICAN ECONOMY

Competition Continued… Businesses have to keep prices low enough o

attract buyers, yet low enough to make a profit. Competition requires that companies can enter

or exit any industry they choose. Expansion of old industry into new

i.e. Pfatzgraft, VCR’s, VCR players Barriers: for the most part the U.S. has “weak

barriers” Some professions have stronger barriers i.e. doctors, lawyers, public utility, TV station,etc.

THE GOALS OF THE NATION (SECTION 2.3)

Aims of a Market Economy – Our National Goals1. Economic Efficiency – using resources wisely so that

others will be as well off as possible2. Economic Growth – expansion of economy to produce

more goods, jobs and wealth3. Security & Equity – protecting people against poverty

and supplying them with means to create a “level field” (fair and just)

4. Individual Freedom – allows each member of society to enjoy freedoms of enterprise, choice, private property and decisions in the marketplace

5. Stability – seeks to reduce the standard of living (material well-being and access to goods and services of an individual in reference to the average of the whole nation)

THE GOALS OF THE NATION (SECTION 2.3)

To meet these goals a plan of action must be developed. It often involves “economic policy making” by elected or appointed officials – SCARCITY must be factored into their plans!

THE GOALS OF THE NATION (SECTION 2.3)

“In a world of scarcity, achieving national goals requires sacrifices by certain members of society. Any program to provide more economic security, more justice, or more equitable treatment of people involves a trade-off.”

Key to understanding economic political system!!!

ADVANTAGES OF FREE ENTERPRISE

1. High level of economic and personal freedom

Freedom and choice come at a price – WHAT IS THAT PRICE?

2. A high standard of living Standard of living tied to one’s own choice

of career, how $ is spent, invested, etc.

3. Diverse lifestyles People can choose a number of jobs, part-

time, full-time, multiple jobs, shifts, etc.

BALANCING ECONOMIC RIGHTS AND RESPONSIBILITIES

TO HAVE A WELL FUNCTIONING ECONOMY:

1. Be able to support yourself (welfare dilemma; values based argument)

2. Education may be offered to you free of charge but does NOT Go without opportunity cost, therefore it is your responsibility to use your education to become a productive member of the free-enterprise

3. Elect responsible government officials