Download Chapter 2 Notes

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.
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
*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
*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
Chapter 2 Section 2
Seven Economic Goals of the U.S.
1.
Economic Freedom: we can choose
our jobs and that is very important to us.
2.
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.
Economic Security:
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 $2,116/month.
Workers Compensation, Medicare (65+)
5. Full Employment:
People want their economic system to provide
as many jobs as possible
6. Price Stability:
If inflation occurs, workers want an increase in
wages.
Inflation-rise in the general level of prices>rise
in interest rates>businesses don’t borrow>don’t
spend
Fixed Income-wages do not change
Bills are harder to pay, investing goes down,
saving goes down
7. Economic Growth:
Most Americans want a better job>better house,
car and standard of living. If the population is
growing, we need economic growth to keep up
with the increase in wants and needs.
Section III
Capitalism and Economic Freedom
Capitalism: entrepreneurs own the factors of
production.
Free Enterprise: competition can flourish with
min. govt. interference. (comp. keeps prices
down)
Five Factors of Free Enterprise:
1 – Economic Freedom
People >choose your line of work and when,
where and whom you work for.
Businesses>. choose who they hire and fire and
what to sell
2 – Voluntary Exchange:
buyers and sellers freely and willingly engage in
market transactions. If both are not better off
after the exchange, then it usually doesn’t
happen.
3- Private Property Rights – you have the right to
own and control your possessions as long as it
does not interfere with others rights. You can
feel safe that if you work hard, you can keep
your rewards.
4-Profit Motive – largely responsible for free
enterprise growth it is the force that
encourages one to improve their well being
(invisible hand). Ie..you can risk your savings or
any other form of wealth in a business venture.
5 – Competition – sellers trying to attract
consumers while keeping low prices.> G&S are
prod. At the lowest cost poss. And allocated to
those willing and able to pay$ for them.
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
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