Unit 1 An Introduction to the Study of

Unit 1: An Introduction to the Study of Economics Lesson 2: Economic Systems

Definitions 1. economic system: the method used by a society to produce and distribute goods and services into the marketplace 2. market: an arrangement that allows buyers and sellers to exchange things

Three Economic Questions 1. What to produce? Military Goods Consumer Goods

Three Economic Questions 2. How to produce? Nationalized Industry (Regulation) Free Enterprise (Deregulation)

Three Economic Questions 3. For whom to produce?

Scarcity and Choice Flowchart Unlimited Wants & Needs Limited Resources Scarcity Choices What to Produce? How to Produce? For Whom to Produce?

Economic Goals 1. Economic Efficiency: to make the most of limited resources by maximizing output 2. Economic Freedom: to afford free choice in the marketplace 3. Economic Security: to provide a sense of certainty in goods and services, payments, and “safety nets”

Economic Goals 4. Economic Equity: to divide the “economic pie” in a fair manner 5. Economic Growth: to improve “standard of living” by increasing output 6. Additional Goals: environmental protection, full employment, universal health care?

Economic Models Economic System What to Produce? How to Produce? For Whom to Produce? traditional: Social Units command: market: Government Individuals

Modern Economies 1. Definition ● mixed economy: economic system that combines the free market with government involvement ● All economies are mixed in reality

Modern Economies 2. A Continuum of Mixed Economies North Korea Hong Kong Sweden China United States

Checking for Understanding 1. Which of the following is not one of the three key economic questions? a. How to produce? b. When to produce? c. For whom to produce? d. What to produce?

Checking for Understanding 2. Which economic goal is concerned with questions of fairness? a. economic security b. economic efficiency c. economic equity d. economic growth

Checking for Understanding 3. In which economic system are answers to the three basic economic questions found in the past? a. traditional b. command c. market d. mixed

Checking for Understanding 4. Which country would be placed furthest to the left in the continuum of mixed economies? a. United States b. Hong Kong c. North Korea d. China