Download Unit 2 notes - MR. Chavez`s Class

Economics Unit 2
economic systems
Essential Question:
•What are the advantages and
disadvantages of the different
economic systems used by countries to
answer the 3 basic economic questions
to meet a standard of living for its
population?
Essential Terms/Concepts
• Trade-Off
• Opportunity Cost
• Cost-Benefit Analysis
• Standard of living
• Traditional Economy
• Command Economy
• Market Economy
• Mixed Economy
• Economic freedom
• Voluntary exchange
• Private Property Rights
• Profit Motive
• Competition
Standard of Living- quality of life based on our
needs and wants. What should everyone have?
• For America-
Cost Benefit Analysis-Evaluate alternatives
• Trade-Off- alternative
choices when ever an
economic decision is
made.
• Opportunity Cost- the
cost of the next best
alternative use of money,
time, or resources.
Traditional
• -An economic system where tradition and custom govern economic
decisions
• -Economic activities are usually centered toward the family, tribe, or
ethnic group
• -Resources are allocated based on inheritance
• -Farming, hunting, and gathering are done largely in the same fashion
as the generation before
• -Choices are determined by environment
• -Little or no use of technology
Traditional Economy- Not many left
Advantages
Disadvantages
• Little uncertainty of how • Discourages new ideas
to answer the 3 economic and new ways of doing
questions.
things
• What?- Your family farms • Lack of progress and very
you farm. They hunt to
constricting
hunt
• lower standard of living
• How?- Just like Dad
• Whom?- determined by
customs and traditions
Command
• -The government or other central authority makes all economic
decisions
• -Individuals have little, if any, influence over economic functions
• -Resources are owned by the government
• -There is no competition; the purpose of business is to provide goods
and services, not to make a profit
• -Factories are concerned with quotas
• -Consumers have few, if any, choices in the market place
• -The government sets the prices of goods and services
Command “Communist "economies- Few left
Cuba, North Korea
Advantages
Disadvantages
• Can focus its factors of production
quickly because all major decisions
are centralized.
• Typically many public services such
as education and health-care
available to the majority of the
people. Quality varies
• -Serves people collectively instead
of individuals; focus on equality
• -Distributes wealth among all of
society
• -Products produces fulfill needs
• Not designed to meet the wants
of consumers
• No or little incentive to be
productive because all receive
similar wages.
• Little or no innovation
• -Often there is insufficient
resource distribution, ie.
Shortages and/or surpluses
What changes is Cuba making to their
economy?
• Have allowed trade with some foreign countries
• Have allowed the use of the dollar
• Have allowed small “State” controlled markets to open up.
What have been the positive outcomes in
Cuba?
The United Emirates- Command Economy?
Market Economy
• -Economic decisions are made by individuals competing to earn
profits based on supply and demand
• -Resources are owned by individuals
• -Profit, not quotas, is the motive for increasing work
• -Competition determines price and increases the quality of products
• -Individual freedom is considered very important; individuals have
freedom to make economic decisions
• -Also called “capitalist” economy
Market Economies
Advantages
• -Prices determine by market
forces (supply and demand);
competition brings down prices
• -Consumers can buy whatever
they like in whatever amounts
they want
• -Adjusts to change easily
• -Little government intervention
• -Great variety of goods and
services
• -Capital flows to where
Disadvantages
• Does not always provide basic
needs of everyone in society,
which can lead people to slip into
poverty
• -May make it difficult for
government to provide adequate
social services
• -There are occasionally market
failures
• -People can make choices which
are harmful to themselves and to
others
Mixed Economy
• -Combines elements of pure market and command economies;
Government and individuals share the economic decision making
process
• -Government guides and regulates production of goods and services
• -Resources are owned by individuals
• -Government serves to protect both producers and consumers from
unfair policies and practices
Mixed economy
Advantages
Disadvantages
• *See advantages of command
and market economic systems
• -Can focuses on social welfare
and political freedom, as well as
individual liberties
• *See disadvantages of command
and market economic systems
• -May not lead to optimal use of
resources
• -Government intervention can
hinder progress
Comparative Economic Systems
• 1. How can the presence or Scarcity of natural resources and arable
land affect a nation’s economy, regardless of the type of economic
system?
• 2. How can life expectancy and literacy rates affect the quality of a
countries Human Resources in the economy?
• 3. How can fertility rates affect the use of scarce resources?
• 4. How can GDP per capita and poverty rates indicate standards of
living in each system?
• 5. How can the size of the industrial/service sector and the
agriculture employment rate indicate the level of industrialization?
• 6. How can electricity, communication, and transportation facilities
indicate the potential for industrial growth?
• 7. Considering the lack of natural resources, the labor problems, and
the lack of capital and little industrialization of developing
countries, how can developing countries develop? (Hint: Look at
Economy - Overview for Chad).
• 8. Now that you have studied the economic characteristics of these
three countries, define the terms market-oriented, command, and
developing economy in your own words. For each term, describe the
specific characteristics of the countries you studied that would help
to support your definition.