Economic Systems:

Objectives o We will examine the three key

economic questions that all societies must answer.

o We will analyze the values that determine how a country answer the three economic questions.

o We will define the characteristics of a traditional economy.

Mar_8:36 For what shall it profit a

man, if he shall gain the whole world,

and lose his own soul?

Who determines what is sold? • In some nations, the

government determines what is being sold including the brand of products.

• They determine who gets what.

• Each society faces these questions, about the production and consumption of goods and services.

• These questions come from the freedom of choice.

Three Key Economic Questions:

• What goods and services

should be produced?

• How should these goods

and services be produced?

• Who consumes these

goods and services?

Three Key Economic Questions:

• The way these questions are answered defines its economic systems.

• An economic system is the structure of methods and principles a society uses to produce and distribute goods and services.

Three Key Economic Questions:

• Each society must decide what to produce in order to satisfy the needs and wants of its people.

• While all people need food and shelter societies face additional important considerations.

Three Key Economic Questions:

• What consumer products

should be produced?

• How much of our resources

should be devoted to

national defense,

education, or consumer

goods.

• A society must also decide how to produce goods and services.

• What fuel should we use to generate electricity—Oil, solar power or nuclear power?

• Is education best delivered through public schools or private schools?

• Although there are many ways to produce goods and services, all require labor, land, and capital.

Who Consumes goods and services?

• Societies also make decisions that determine how goods and services are consumed.

• How can people meet their needs for food and medical care?

• Who gets to drive a new luxury car and who can only afford certain products?

Discussion Question

• You are the president or head of state of a

nation, what type of goods and services

would your nation focus on producing?

• List four and explain why you choose these

four. (Activity: Rank magnet pics)

Who Consumes goods and services? • The answers to such questions is

largely determine by how societies distribute income.

• Factor Payments are the income people receive in return for supplying factors of production land (Owners), labor (employees), or capital (Banks).

• Landowners collect rent, workers earn wages, and those who lend money receive payments called interest.

Who Consumes goods and services?

• Factor payments also include the profits that entrepreneurs earn if their enterprises succeed.

• Profit is the amount of money a business receives in excess of its expenses.

• Profits are the rewards entrepreneurs receive for taking the risk of starting a business.

Who Consumes goods and services?

• How much should we pay the

owners of the factors of

production?

• How do we decide how much

teachers should earn as oppose

to entertainers or athletes?

• This tells us a great deal about

societies values.

Discussion Question

• What Occupations do you think deserves the

most pay and explain why?

Economic Goals and Societal Goals: • Economic Efficiency: Because resources

are always scarce, societies try to maximize what they can produce using the resources they have.

• If a society can accurately assess what its people need and want, it increases its economic efficiency.

• A manufacturer would be wasting resources producing desktop computers if people prefer laptops.

• An economy that cannot deliver the right goods in the right quantity to the right people at the right price is not efficient.

• Economic Freedom: Most people value the opportunity to make their own choices.

• Still, people all over the world face limitations on their economic freedom.

• We prize the freedom to buy what we can pay for to seek work where we want etc., individual freedom is a key cultural value for Americans.

Economic Security:

• Economic systems seek to reassure people that goods and services will be available when needed and that they can count on receiving expected payments on time.

• We also want the security of knowing that help is available if we are in need.

• Many government provides a safety net or set programs to protect people who face unfavorable economic conditions such as layoffs, injuries, or national disasters.

• Social Security, Disaster relief, unemployment and disability are examples.

Economic Growth • A nation’s economy must grow

with its population so it can

provide jobs for the new people

joining the workforce.

• A nation’s economy must grow

if people are going to have

more income.

Economic Growth • When that occurs, the nation

improves its standard of living

or level of economic prosperity.

Economic Growth • Innovation plays a huge role in

economic growth.

• Innovation is the process of

bringing new methods,

products, or the ideas into use.

Goals in Conflict: • Sometimes goals can be in conflict.

• Added regulation on the environment may prevent companies economic freedom to make money.

• Government spending money to provide health care for all their citizens may slow economic growth because of the increase of taxes.

Different Economic Systems: • A traditional economy is the

oldest and simplest of economic systems.

• It relies on habit, custom, or ritual to answer the three key economic questions.

• There is little room for innovation or change.

Different Economic Systems: • The traditional economic system revolves

around the family unit often extended family made up of several generations.

• Work tends to be divided along gender lines.

• Boys tend to take up the occupation of fathers and girls their mothers.

• Often they support the entire community or village rather than just their immediate families and its usually based on agriculture and hunting.

• They are also slow to adapt new technology and not have many conveniences.