Download OGT Economics - Plain Local Schools

› What should be produced?
› How should it be produced?
› Who should get what is produced?

ECONOMIC SYSTEMS
› Economic System: the method that each
society uses to answer the 3 basic economic
questions
Customs & traditions from ancestors
 Farming/agricultural
 Rural, non-industrialized areas
 Individuals lack freedom & economic
growth is slow (Feudalism)


Government or ruler decides the answers
to the 3 basic economic questions
› Government determines
 Who should make what?
 Who should receive what is produced?

Everything belongs to the government;
no private property (Soviet Communism)
› Ideal society: everything is shared
› Soviet economy collapsed b/c lacked
incentives for workers & was not responsive
to the needs of consumers
Individuals enjoy the freedom of making
their own economic decisions
 Individuals invest money in their own
business to produce and sell goods and
services to make a profit

› Profit: extra money that is made after all
expenses are paid


Choice in what to buy
Limited government interference-settle
disputes & make sure economy is
functioning smoothly

3 basic questioned answered by:
producers & consumers
› Producers: those who make and sell goods &
services
› Consumers: those who buy and use goods
and services
Private Property: Right to own property &
use as see fit
 Freedom of Enterprise: enter into almost
any business or buy/sell almost any
product
 Competition/Choice

› Attract customers to similar products by
improving quality and reducing prices
› Less efficient producers go out of business
 Supply
& Demand:
› Supply: how much a of a good producers
make available
› Demand: how much of a product
consumers are willing to buy




High supply-Low Demand = Low price
High supply-High Demand = High price
Low supply-Low Demand = Low price
Low supply-High Demand = High price

Mixture/blend of all 3 economic systems
ECONOMIC
SYSTEM
WHAT TO
PRODUCE?
HOW IT IS
PRODUCED?
WHO GETS IT?
EFFECTS ON
PEOPLE’S
LIFESTYLE
TRADITIONAL
ECONOMY
Tradition &
custom
Tradition &
custom
Tradition &
Custom
Stability &
security but at
cost of
individual
freedom &
economic
growth
COMMAND
ECONOMY
Ruler or
government
Ruler or
government
Ruler or
government
Modernize
quick but lack
consumer
goods &
personal
freedom
MARKET
ECONOMY
Interaction of
producers &
consumers
with supply &
demand
Producers
decide-less
efficient out of
business
Consumers
buy what
want & can
afford
Respond to
consumer
needs; free
exchange of
information
 Laissez-faire
capitalism: government
should not be involved in the
economy except to provide public
services
 US Federal Government Today to
promote economic growth & stability:
› Promote maximum employment
› Promote maximum production
› Limit inflation (rising prices)
Public Goods: government provides
some goods and services to the
economy directly-military defense; to
increase employment or to provide
services needed by the economy
 Redistribution of income:

› Graduated federal income tax: wealthier
taxpayers pay income tax at higher rates
› Government then redistributes this money to
help less fortunate to help balance the
inequalities within the market system
 The
Power to Regulate Economic
Activities:
› Sherman Antitrust Act: prohibited
monopolies that engaged in unfair
practices
› Pure Food & Drug Act: protected
consumers from impure or unsafe foods &
drugs
› Government protects workers,
consumers, and the environment by
establishing health & safety standards
and ensuring equal opportunity.

Fiscal Policy:
› Taxes-money people pay to the government
› Bonds-pay a fixed interest rate to investors
who buy them
› Fiscal policy-government able to influence
the economy by its spending, taxing and
borrowing
 Economic Downturn-government spending more
than collecting taxes; hires more workers, buys
more products, creates jobs=workers & businesses
spend more, increase in demand & stimulating
production
 High Inflation (rising prices)=government increase
taxes & collects more money than spends; slows
the economy and lower prices
 Monetary
Policy:
› Government’s ability to control the total
money supply in our economy
› Availability of money affects the overall
amount of business activity
 More money available with easy access=more
spending
 Less money & difficult to obtain=less spending
› Federal Reserved System:
 Control nation’s money supply
 Controls the ability of banks to lend money
 Lends money to banks at own interest rate
 Reserve Requirement-percentage of deposits
that banks can lend & the percentage they
must keep in reserve (hold in their vaults)
 In recession or depression=makes more money
available by lowering interest rate & percentage of
deposits that banks must keep in reserve
 More borrow money and purchase
more=stimulating the economy
 Economy expanding too rapidly & prices are rising
=raise interest rates & reserve requirements
 Banks have less money to lend, reducing nation’s
money supply, spending less & slowing the
economy

Trade Policy:
› Tariff: tax on imports to protect American
producers from foreign competition
› Quotas: restrictions on the number of goods
that a particular foreign country can import
› Blockade/Embargo: complete prohibition of
trade with another country; usually political
reasons
› Protectionism: use of tariffs, quotas,
blockades & other policies to protect US
producers from foreign competition
 Encourages other nations to impose higher tariffs
on American goods
› Free Trade: removing tariffs & other obstacles
to trade
 Encourages specialization=expanding consumer
choice and lowering prices