Scarcity forces society to ask 3 questions: WHAT goods and services to produce HOW to produce them FOR WHOM to produce them

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2 Scarcity forces society to ask 3 questions: WHAT goods and services to produce HOW to produce them FOR WHOM to produce them

3 Knowledge Distinguish between the various economic systems (traditional, market, command, mixed) Reasoning Compare and contrast how the various economic systems (traditional, market, command, mixed) try to answer the questions: What to produce? How to produce it? For whom to produce? Compare and contrast the theoretical principles of the economic systems of capitalism, socialism, and communism. Skill Use historical examples to provide evidence of the economic systems of capitalism, socialism, and communism their effectiveness.

4 Organized way in which a society provides for the wants and needs of its people 3 Major kinds exist: Traditional Command Market

5 Rely on a central authority (ex: king, dictator, president) to make most of the economic decisions Few exist today, because they tend to be unproductive

6 Advantages Capable of dramatic change in a short time Many basic education, health, and other public services available at little or no cost Disadvantages Does not meet the wants and needs of consumers Lacks effective incentives to get people to work Requires large bureaucracy, which consumes resources Has little flexibility to deal with day-to-day changes Lacks room for individual initiative

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9 Use rituals, habits, or customs to answer the basic questions of WHAT, HOW, and FOR WHOM to produce Roles are defined by the customs of their elders and ancestors

10 Found in rural, non-developed countries some parts of Asia, Africa, South America and the Middle East Technology is not used in traditional economies Farming, hunting and gathering are done the same way as the generation before Men and women are given different economic roles and tasks

11 Advantages Everyone knows which role to play Disadvantages Tends to discourage new ideas and new ways of doing things

12 Consumers and businesses jointly answer the questions of WHAT, HOW, and FOR WHOM to produce People make decisions in their own best interest

13 Advantages Individual freedom for everyone Able to adjust to change gradually Lack of government interference Decentralized decision making Large variety of goods and services High degree of consumer satisfaction Disadvantages Does not produce enough public goods such as universal education, defense or healthcare Workers and businesses face uncertainty as a result of competition and change Rewards only productive resources

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15 Most economics in the world today feature some mix of traditional, command, and market economies.

16 Traditional Command Market Rituals, roles, customs & habits Central Authority Dictator, President, King Consumers and businesses jointly

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18 CLICK ME ---> Advantages Provides assistance for some people who might otherwise be left out (too young, too old or too sick to provide for themselves) Disadvantages Costs of benefits are higher overall (more taxes)

19 Click the center of this slide to play the video

20 E.3 Identify and explain the broad goals of economic policy such as freedom, efficiency, equity, security, growth, price stability, and full employment.

21 CLICK ME ---> Economic Goal Economic Freedom Economic Growth Definition Individual choice is not constrained by government or power groups within the economy Increase in the production capacity of the economy Priority Rank (Individual) Priority Rank (Group Census) Efficiency Equity Full Employment Security Stability Insuring optimal utilization of scarce resources; prevention of waste of the nation s resources; and getting the most out of available resources People in the society consider the distribution of resources to be fair A country s resources including workers and capital are utilized to capacity (unemployment no higher than 5%) Protection against economic risks (unemployment, hardship in old age, business failure, bank failure, drastic price changes) Prices do not fluctuate rapidly; little or no inflation; no deflation

22 CLICK ME ---> Through Congressional action, NAFTA came into effect on January 1, 1994 with the purpose of abolishing tariffs on goods and services traded between the U.S., Canada and Mexico within 15 years. Instructions: Evaluate based on the +,-,? Ranking whether each of the following goals is achieved, not achieved or cannot be evaluated in relation to goal achievement.

23 Through Congressional action, NAFTA came into effect on January 1, 1994 with the purpose of abolishing tariffs on goods and services traded between the U.S., Canada and Mexico within 15 years. Goal: Equity Full Employment Security Economic Growth Efficiency Stability Economic Freedom

24 National health care in the U.S. has been proposed in various forms for the past several years. The policy we are considering here is one of the first plans introduced free and open health care for all those having no coverage. Approximated at 50 million people. Goal: Equity Full Employment Security Economic Growth Efficiency Stability Economic Freedom

25 E.10 Examine informational text and primary sources to analyze the major ideas of the following economists: Adam Smith Thomas Malthus Karl Marx John Maynard Keynes Friedrich Hayek Milton Friedman Ben Bernanke

26 E.4 Describe how people respond predictably to positive and negative incentives. E.5 Explain that voluntary exchange occurs when all participating parties expect to gain. E.7 Describe how clearly defined and enforced property rights are essential to a market economy. E.14 Explain that consumers ultimately determine what is produced in a market economy (consumer sovereignty). E. 15 Explain the function of profit in a market economy as an incentive for entrepreneurs to accept the risks of business failure.

27 Note: Under capitalism, the basic economic decisions of WHAT, HOW, and FOR WHOM to produce are made through the free interaction of individuals looking out for their own best interest.

28 1. Economic Freedom Individuals Buy what you want Occupational Freedom: Choose what you want to do, where you want to work and who you want to work for Businesses Hire the best workers Produce what they want, at the price, quantity and location they want Free to risk success or failure!

29 2. Voluntary exchange the act of buyers and sellers freely and willingly engaging in market transactions. 3. Private Property Rights Allow people to own and control their possessions as they wish. 4. Profit Motive People and organizations may improve their material well-being by making money.

30 5. Competition - Producers and sellers compete with one another to attract consumers, while lowering costs. Consumers compete with one another to obtain the best products at the lowest price.

31 The Blockster neighborhood is located on the outer edges of prosperous Green City. Although Blockster falls within the city limits of Green City, it is separated from the rest of the city by a large wide area of forest and grassland.

32 Living in Blockster presents problems for school age children. The school bus routes do not extend that far, and few households can provide their own transportation. Ms. Smarte sees an opportunity. She opens a private school in her garage and charges neighbors a fee for sending their children. Some Blockster residents refuse to pay Ms. Smarte s fee; others think the convenience is worth it. Ms. Smarte is pleased with her earnings, but Blockster residents are unhappy with her limited curriculum. The next year, they elect a city council candidate who promises to bring school buses to Blockster. How does Ms. Smarte s school demonstrate the following? 1. Economic Freedom: 2. Voluntary Exchange: 3. Self-Interest: 4. Profit Motive: How do residents influence the government to resolve Blockster s school problem?

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34 Organize land, capital, and labor in order to seek profit Accept the risk of loss Decide HOW to produce Are innovators and catalyst

35 Decide WHAT is produced by how they spend their money Spur development of new products by changing their wants

36 Act as protector, provider, and regulator, ensures and enforces that economic and social goals are carried out Is a large consumer in the economy

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