Economic Systems and the American Economy · Limited Role of Government Capitalism: economic system...
Transcript of Economic Systems and the American Economy · Limited Role of Government Capitalism: economic system...
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Economic Systems and the American
Economy
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Three Basic Questions
What Should Be Produced?
How Should It Be Produced?
For Whom Should It Be Produced?
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Types of Economic Systems
Traditional Economy
Command Economy
Market Economy
Mixed Economy
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Traditional Economy
Based on the way
it has always be
done
father a fisherman,
you become a
fisherman
Oldest type of
economy
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Command Economy
Government makes the decisions
China and North Korea
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Market Economy
individuals own the factors of production
and make economic decisions through
free interaction while looking out for their
own interests
Uses System of voluntary exchange
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Mixed Economy
Combination of
traditional,
command, and/or
market economy
Most Common
Form
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Characteristics of the American Economy
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6 Characteristics of a Pure
Market Economy
1. Limited Role of Government
2. Freedom of Enterprise
3. Freedom of Choice
4. Profit Incetive
5. Private Property
6. Competition
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Limited Role of Government
Capitalism: economic system in which
private individuals own the factors of
production
Laissez-faire: economic system which
the government minimizes its
interference with the economy
“Hand off”/ “Let it be”
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Freedom of Enterprise
Free Enterprise System: economic
system in which individuals own the
factors of production and decide how to
use them with legal limits
Business need to get licenses
Zoning Regulations
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Freedom of Choice
Buyers make the decisions of what
should be produced
If people like it, more is made
If not, production is slowed or stopped
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Profit Incentive
Profit: money left after all the costs of production have been paid
Profit Incentive: desire to make money that motivates people to produce and sell goods and services
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Private Property
Whatever is owned by individuals rather
than government
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Competition
Rivalry among producers or sellers of
similar goods and services to win more
business
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Adam Smith Considered to be the
founder of classical
economics
Argued that the “invisible
hand” would best benefit
society
Belief that people, seeking
profits, would be best for
economy rather than
government intervention