Chapter 2 Notes Section 1 Economic Systems. Three Types of Economies: Traditional, Command and Market

Transcription

1 Chapter 2 Notes Section 1 Economic Systems Three Types of Economies: Traditional, Command and Market Traditional: Individuals make decisions based on what is habit and custom Incentive to work hard is only for honor and good of the society Advantages: *Everyone knows their role, no question of WHAT to produce *Born into your trade, no Q of HOW either Disadvantages: *Discourages new ideas and ingenuity *Lack of progress leads to lower standard of living.

2 Command: Individuals make decisions based on what the government or planner tells them. Incentive to work hard: little or none, just have to do what is quota Advantages: *Economy can change quickly, from heavy industry to military to farming *Health and public services are free or little cost for everyone Disadvantages: *Does not meet the wants of consumers *No incentive to work hard or become educated or career development

3 *Large decision making bureaucracy takes a long time to get anything done b/c of all the workers and red tape. Market: *Individuals make decisions based on their own best interest. *Consumer decisions act like votes that control the economy. *Incentive to work hard: invisible hand: profit: entrepreneurial opportunities Advantages: *It can adjust to change over time. IE. Gas guzzlers of the 70 s>gas shortage > Honda Civic *High degree of individual freedom. Can you start your own business in the other two economies? *Small degree of govt. interference

4 *Decentralized decision making: billions of individual economic decisions are made each day. *variety of goods and services *degree of consumer satisfaction Disadvantages: *Does not provide basic needs for everyone *Does not provide enough services for the public from the private sector *High degree of uncertainty because of the possible changing markets

5 Chapter 2 Section 2 Seven Economic Goals of the U.S. 1. Economic Freedom: 2. we can choose our jobs and that is very important to us. Economic Efficiency: If resources are wasted, less G&S can be produced> fewer W&N can be satisfied. We want benefits gained to exceed costs 3. Economic Equity: Your gender, age, race, religion, or disability cannot keep you from employment. Advertisements cannot be false and we are protected by such things as lemon laws. 4. Social Security benefits are based on earnings averaged over most of a worker's lifetime. calculate your avg mo. earnings for the 35 years you earned the most. At 65 years of age, you receive your PIA - "primary insurance amount" The maximum benefit for 2007 for a person retiring at full retirement age (65 years and 10 months) is $2,116/month. Economic Security: Workers Compensation, Medicare (65+)

6 5. Full Employment: People want their economic system to provide as many jobs as possible 6. Price Stability: If inflation occurs, workers want an increase in wages. Inflation-rise in the general level of prices>rise in interest rates>businesses don t borrow>don t spend Fixed Income-wages do not change Bills are harder to pay, investing goes down, saving goes down 7. Economic Growth: Most Americans want a better job>better house, car and standard of living. If the population is growing, we need economic growth to keep up with the increase in wants and needs.

7 Section III Capitalism and Economic Freedom Capitalism: entrepreneurs own the factors of production. Free Enterprise: competition can flourish with min. govt. interference. (comp. keeps prices down) Five Factors of Free Enterprise: 1 Economic Freedom People >choose your line of work and when, where and whom you work for. Businesses>. choose who they hire and fire and what to sell 2 Voluntary Exchange: buyers and sellers freely and willingly engage in market transactions. If both are not better off after the exchange, then it usually doesn t happen.

8 3- Private Property Rights you have the right to own and control your possessions as long as it does not interfere with others rights. You can feel safe that if you work hard, you can keep your rewards. 4-Profit Motive largely responsible for free enterprise growth it is the force that encourages one to improve their well being (invisible hand). Ie..you can risk your savings or any other form of wealth in a business venture. 5 Competition sellers trying to attract consumers while keeping low prices.> G&S are prod. At the lowest cost poss. And allocated to those willing and able to pay$ for them.

9 The Entrepreneur: *Most important part of capitalist economy. *Start up new businesses * be your own boss > risk everything for dreams Bill Gates, Mary Kay, Oprah, ect.. Results of ent. *More/newer and better paying jobs *New/better G&S available *Govt. gets more tax $ > more public stuff (lib, roads ect ) *other firms float to succ. Industries> subway, underarmor, ect. *Best part----original has to cut prices or improve product to remain on the top. Consumer sovereignty: buyers rule the market Think of popular sovereignty people rule

10 Role of Govt. in our economy *Protector> F.D.A., E.P.A., discrimination, *Provider & consumer> defense, ed, welfare *Regulator> preserve comp, monopolies, liars, *Promoter of Nat. Goals> do you recall the seven goals? Americans have modified their economy to make it their own, it is known as a mixed economy or modified private enterprise economy b/c we take the best of everything to make ours work how it makes us the