tuesday, march 17 welcome back! happy st. patrick’s day! bellringer: what is the difference...
TRANSCRIPT
Tuesday, March 17
• Welcome back! Happy St. Patrick’s Day!
• Bellringer:• What is the difference
between trade-offs and opportunity costs? Give an example.
Making decisions
• Trade-off: an alternative that we sacrifice when we make a decision– Cost-benefit analysis: What benefit am I getting
for the cost?• Opportunity cost: the most desirable
alternative given up as the result of a decision
Economic systems
• Remember the main problem in economics?
SCARCITY
UNLIMITED WANTS
LIMITED RESOURCES
CHOICES
Three basic questions that all economic
systems must answerWHAT?
FOR WHOM?
HOW?
Main problem in economics
Economic systems
• Remember the main problem in economics?– SCARCITY: Limited resources, unlimited wants
• Scarcity forces societies and nations to answer some hard economic questions
• People with different values came up with different solutions based on those values
• Economic system: The method used by a society to produce and distribute goods and services
SCARCITY
UNLIMITED WANTS
LIMITED RESOURCES
CHOICES
Three basic questions that all economic
systems must answerWHAT?
FOR WHOM?
HOW?
Main problem in economics
Economic systems
• The three key economic questions every society must answer:– WHAT goods and services should be produced?
• National defense• Education• Public health and welfare• Consumer goodsRemember: Each decision comes at an opportunity
cost!
Economic systems
• The three key economic questions every society must answer:– HOW should those goods and services be
produced?• Electricity: Oil? Solar power? Nuclear power?• Education: Class sizes of 20 or 50?• Food: Large corporate farms or small family farms?Countless possible combinations of land, labor,
and capital
Economic systems
• The three key economic questions every society must answer:– WHO consumes these goods and services?
• How do we distribute the available goods and services?
• Who gets to consume which goods and services?• Factor payments: the income people receive for
supplying factors of production, such as land, labor, or capital
Economic goals and societal values
• As they answer these three key questions, societies pursue some economic goals at the expense of others
• In doing so, they signal what they value
Economic goals
Economic efficiency
Economic freedom
Economic security and predictability
Economic equity
Economic growth and innovation
Other goals
Economic goals
• Economic efficiency– Making the most of resources
• Economic freedom– Freedom from government intervention in the
production and distribution of goods and services– How free are you to choose to produce, purchase,
and possess certain items?
Economic goals
• Economic security and predictability– Assurance that goods and services will be
available, payments will be made on time, and a safety net will protect individuals in times of economic disaster
• Safety net: government programs that protect people experiencing unfavorable economic conditions, like injury, layoffs, natural disasters, etc. Example:
Economic goals
• Economic equity– Fair distribution of wealth– What is “fair”?– Should everyone get the same amount, or should
consumption depend on production?– How much should society provide for people who
are unwilling or unable to produce?– Equal pay for equal work sounds good, but …
• Police officers vs. lawyers?• Teachers vs. soldiers?
Economic goals
• Economic growth and innovation– A nation’s economy must grow for that nation to
improve its standard of living, or level of economic prosperity!
– Innovation – new products or ideas – is key to this process!
Economic goals
• Other goals– Societies may value other goals, too:
• Environmental protection• Full employment• Universal medical careThey can incorporate these other goals, but
only with some kind of economic trade-off!
Four types of economic systems
• Traditional economy: economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services– Family-based, work divided along gender lines– Small, close communities– Vulnerable to environmental disaster– Slow to adopt new technology– Most lack modern conveniences and have a low
standard of living
Four types of economic systems
• Market economy: Economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets– Decisions are made by individuals– Individuals choices determine what gets made,
how it’s made, and who consumes what’s made– Also called free markets, or capitalism
Four types of economic systems
• Centrally planned economy: economic system in which the central government makes all decisions on the production and consumption of goods and services– Command economy: economic system in which a
central authority is in command of the economy; a centrally planned economy
(They basically mean the same thing)
Four types of economic systems
• Mixed economy: A market-based economic system with limited government involvement– Most modern economies are mixed economies