Economic Systems

1. CHAPTER 2 Economic Systems SECTION 1: Types of Economic Systems SECTION 2: Features of the U.S. Economy SECTION 3: The U.S. Economy at Work

2. SECTION 1 Types of Economic Systems Objectives: • How are the three basic economic questions answered in traditional, command, and market economies? • What are the roles of self-interest and incentives in a market economy? • What types of mixed economies exist today?

3. SECTION 1 Types of Economic Systems How the three basic economic questions are answered in various economies: • Traditional economy • what to produce determined by tradition • how to produce determined by custom • for whom to produce determined by the number of members in the society • Command economy—answers to all questions determined by government officials • Market economy—answers to all questions determined by individuals

4. SECTION 1 Types of Economic Systems Roles of self-interest and incentives in a market economy: • Self-interest drives people to fulfill their needs and wants and helps the market grow. • Incentives help people decide which economic choices are in their self-interest.

5. SECTION 1 Types of Economic Systems Types of mixed economies currently in existence: • authoritarian socialism • capitalism • democratic socialism

6. SECTION 2 Features of the U.S. Economy Objectives: • What are the basic principles of free enterprise in the United States? • What are the two markets of the circular-flow model? • How does the circular-flow model reflect exchange?

7. SECTION 2 Features of the U.S. Economy Basic principles of free enterprise in the United States: • freedom to own private property and enter into contracts • freedom to make choices • freedom to engage in economic competition • freedom to make decisions based on self-interest • freedom to participate in the economy with limited government involvement and regulation

8. SECTION 2 Features of the U.S. Economy Two markets of the circular-flow model: • product market • resource market

9. Circular Flow Model Resources and Payments Income/ Goods and Services Payments and Services Taxes/Resources Goods and Services/Taxes Goods and Services/Taxes

10. SECTION 2 Features of the U.S. Economy How the circular-flow model reflects exchange: • shows the flow of resources and products to businesses and the government • displays the flow of payments to individuals

11. SECTION 3 The U.S. Economy at Work Objectives: • How do nations decide how to use scarce resources? • What are the major goals of U.S. economic policy? • Why do economic goals sometimes conflict?

12. SECTION 3 The U.S. Economy at Work How nations decide how to use scarce resources: • Households, businesses, and the government work together to set goals.

13. SECTION 3 The U.S. Economy at Work Major goals of U.S. economic policy: • freedom • efficiency • equity • security • stability • growth

14. SECTION 3 The U.S. Economy at Work Why economic goals sometimes conflict: • differences in the goals of various socioeconomic groups • differences in how to achieve goals

15. CHAPTER 2 Wrap-Up 1. How does the U.S. economic system compare to traditional and command economic systems? 2. In which category of mixed economic systems does the U.S. fit? Explain your answer. 3. Give an example of a traditional economic system. What are the consequences to an individual consumer who enters into a contract? 4. What are the economic principles of private property and voluntary exchange?

16. CHAPTER 2 Wrap-Up 5. What are the goals of U.S. economic policy? 6. Why are scarcity and choice basic economic problems?