ECONOMICS

D AY 5 – M O N D AY, J A N U A RY 1 1 T H

• Crash Course - Economic Systems

OPENER: DAY 5 - MONDAY, JANUARY 11TH

WHAT DID WE LEARN YESTERDAY?

Economic Systems

• An economic system is a system of production and

exchange of goods and services as well as allocation of

resources in a society.

WHAT DID WE LEARN YESTERDAY? Economic

Systems

WHAT to Produce? HOW to

produce it?

For WHOM to

produce?

Examples

Traditional • Determined by

tradition

• Economic roles

often passed from

generation to

generation

Determined

by custom

Usually centered

around

traditional family

and social units

such as a tribe

• Aborigines of

Australia

• Makati of Central

Africa

• Inuit of Canada

Command Determined by

government officials

Determined

by

government

officials

Determined by

government

officials

• Old Kingdom

Egypt

• Middle Ages in

Europe

• Zhou Dynasty in

China

Market Determined by

individuals

Determined

by individuals

Determined by

individuals

• United States

• Canada

• Australia

WHAT DID WE LEARN YESTERDAY?

Mixed Economy

• Market + Command = Mixed Economy

WHAT DID WE LEARN

YESTERDAY?

WHAT DID WE LEARN YESTERDAY? Economic Goals of the U.S.A.

• Economic: Freedom

Efficiency

Equal Opportunity

Security

• Full employment

• Price stability

• Economic growth

WHAT DID WE LEARN YESTERDAY?

Continuum of Economic Systems

LET’S LAYER IN A LITTLE POLITICS

Economic

Systems

Command

Mixed

Market

Free Market

Free Enterprise

Corresponding

Political/

Government

Systems

Communism

Socialism

Capitalism

Description Government control and

ownership of all means of

production

Government control of

major means of

production (land

and/or natural

resources)

Low degree of

government control

with little to no

ownership of the

means of production

And don’t forget traditional economies!

Very little organized government

Subsistence agriculture/farming – farmers grow enough to feed their families

ADVANTAGES OF FREE ENTERPRISE SYSTEM

• U.S. is a capitalist economic system

• This is all based on private ownership of

the four factors of production

• Consumers are free to choose what they

buy, producers are free to make what

they like, and make as much profit as

possible.

HOW FREE ENTERPRISE WORKS

• Free Enterprise is just another name for capitalism

• With capitalism, you are free to start a business that provides

usefulness to consumers

• Businesses are free to use scarce resources as they please

• Managers and workers operate these businesses in

exchange for pay

THE POWER OF THE CONSUMER

• Consumers decide what

they want to buy

• They look for goods and

services to fulfill wants for

the best possible value

LIMITS OF FREE ENTERPRISE

• Government only limits free

enterprise in small ways

–ex. Can’t take advantage of

consumers with unsafe products

• Some emerging nations using free

enterprise set more limits

– Ex. Make companies offer the

same benefits

FIVE FREEDOMS OF FREE ENTERPRISE

1. Right to Private Property- ability to own your own land, thoughts, and material items.

2. Equal Opportunity- Anyone can take part in the market by free choice.

– Ex. No one can tell you that you can’t open a deli.

– This creates a wide range of goods and services to choose from.

– Forces all business to be productive and efficient.

3. Legal Equality- Everyone in the economy is protected by same

economic rights under law.

– Everyone has the right to succeed or fail.

FIVE FREEDOMS OF FREE ENTERPRISE

4. Free Contracts- People choose

which agreements to enter into in

the market place

– ex. Buying a house and agreeing

to pay a mortgage

5. Profit Motive- force that

encourages people to improve

their wealth through economic

activity

• Competition is the struggle

between companies for

customers

• Competition is an essential

part of the free enterprise

system

• It forces businesses to produce

better quality goods and

services at reasonable prices

COMPETITION IN FREE ENTERPRISE

COMPETITION IN FREE ENTERPRISE • Competition is a regulating

force in the economy

• It allows new producers to

enter markets in search of

profits.

• This encourages innovation

and creation of better

products at competitive

prices

CIRCULAR FLOW OF A MARKET ECONOMY • Circular Flow Model

of a Market Economy

A DIFFERENT VIEW OF

CIRCULAR FLOW

DIAGRAM

QUESTIONS FOR REFLECTION

• Which of the five freedoms of free enterprise is most

important? Please explain why you feel that way.

• How would the U.S.A. be different if we had a command

economy?

HOMEWORK – DAY 5, JANUARY 11TH

• Your Unit One test is on Wednesday.

• So review your notes from all our studies.

• Complete your Study Guide. You’ll be turning it in

before your test for a grade.

• Come to class tomorrow with any questions or things you

need explained to you.