1.2 Economic Systems & Key Economic Concepts

Three Economic Questions

What should we make? [Consumption]

How do we make it? [Production]

For whom do we make it? [Distribution]

Input = Factors of Production =resources

Your inputs, factors of production, or resources are what goes into making a product.

What are the two types of outputs?

Goods and Services

3/4 Types Factors of Production

Land, Labor, and Capital (enterpenuirship sometiems)

What are the outputs?

Our products

What are the two Branches of Economics

Macroeconomics and Microeconomic

Microeconomics

Smaller scale, Choices made by individuals, households, and/or businesses (firms).

Macroeconomics

Larger scale; Looking at the economy as a whole.  Government policy; inflation; unemployment; GDP

The method used by a society to produce and distribute goods and services.

Economics systems

What are the Three types of economic systems?

Traditional, Command System, and Free Market

Traditional Economy

Economic questions are answered by habits and customs (the way it has always been done)

•Children work the same jobs parents worked, often farming or hunter/gatherer. Fear of Change! Ex: The Amish

Command Economy

•The government answers the basic economic questions. Some examples can be communist country’s like china

What’re the advantages of a command Economy

Able to act quickly in emergencies, provide for all people equally

What’re the disadvantages of CommandEconomy

Inefficient, no incentive to work hard or be creative

Free Market Economy

Economic questions are answered by individual buyers and sellers, Supply and demand influence economy, and People act out of self interest; motive for profit. (money) drives the economy. Like the USA

What are other names for the Free Market Economy

FREE ENTERPRISE or CAPITALISM

Mixed Economy

 No economy is pure market, pure command or pure traditional, elements of each appear in all economies. Some have more elements of one economy than another.

Features of American Free Market Economy

1.Economic Freedom: individuals have the right to choose

2.Competition: more than one producer of good/services insures choice

3.Private Property: individuals have the right to own their own property, including business

4.Self-Interest: individuals make decisions based on what is best for them

5.Voluntary Exchange: individuals may freely buy and sell goods

6.Profit Motive: individuals are driven by a desire to profit (make money)

Features of American Command Economy

1.Government regulation of some business practices

•Ex. Wages, labor hours, safety practice.

2.Government limits certain choices

•Ex. Cannot buy or produce certain goods/services

3.Government provides aid to the needy

•Ex. Medicare, Medicaid, welfare