Economic Systems:

Objectives o WHAT: Explain the three key economic questions

that all societies must answer. o WHAT: Explain the values that determine how a

country answers the three economic questions. o WHAT: Define the characteristics of a traditional

economy. o WHY: 12.2 (8). Explain the role of profit as the

incentive to entrepreneurs in a market economy. o WHY: 12.3 (1) Understand how the role of

government in a market economy often includes providing for national defense, addressing environmental concerns, defining and enforcing property rights, attempting to make markets more competitive, and protecting consumers' rights.

Mar_8:36 For what shall it profit a

man, if he shall gain the whole

world, and lose his own soul?

Who determines what is sold? • In some nations, the government

determines what is being sold including the brand of products.

• They determine who gets what.

• Each society faces these questions, about the production and consumption of goods and services.

• These questions come from the freedom of choice.

Three Key Economic Questions:

• What goods and services

should be produced?

• How should these goods

and services be

produced?

• Who consumes these

goods and services?

Economic Systems:

• The three key economic

questions define its

economic system.

• An economic system is the

structure of methods and

principles a society uses to

produce and distribute

goods and services.

Three Key Economic Questions:

• Each society must decide what to produce in order to satisfy the needs and wants of its people.

• All people need food and shelter.

• Societies face additional important considerations.

Three Key Economic Questions:

• What consumer products should be produced?

• How much of our resources should be devoted to national defense?

• Education?

• Consumer goods?

Questions Society Must Answer:

o A society must also decide how to produce goods and services.

o What fuel should we use to generate electricity?

o Is education best delivered through public schools or private schools?

o Although there are many ways to produce goods and services, all require labor, land, and capital.

Who Consumes goods and services? • Societies also make decisions that

determine how goods and services are consumed.

• How can people meet their needs for food and medical care?

• Who gets to drive a new luxury car and who can only afford certain products?

• The answers to such questions is largely determines how societies distribute income.

Discussion Question

• List four and explain why you choose

these four. (Activity: Rank magnet pics)

• You are the president or head of state of a

nation, what type of goods and services

would your nation focus on producing?

(Get in row groups)

Factor Payments: • Are the income people receive in

return for supplying factors of production.

• Land (Owners), labor (employees), or capital (Banks).

• Landowners collect rent.

• Workers earn wages.

• Those who lend money receive payments called interest.

• Also include the profits that entrepreneurs earn if their enterprises succeed.

Profits:

• Is the amount of money a

business receives in excess

of its expenses.

• It is also the rewards

entrepreneurs for taking risks

for starting a business.

Who Consumes goods and services?

• How much should we pay the owners of the factors of production?

• How do we decide how much teachers should earn as oppose to entertainers or athletes?

• This tells us a great deal about societies values.

Discussion Question

• Get in groups of two and list five jobs

whose pay is overpaid and explain why.

• What Occupations do you think deserves

the most pay and explain why?

Economic Efficiency: • Because resources are always

scarce, societies try to maximize what they can produce.

• Using the resources they have.

• If a society can accurately assess what its people need and want, it increases its economic efficiency.

• For example, if the people want laptops, its efficient for a manufacturer to produce laptops rather than desktops.

Economic Freedom:

o The people determine by

their choices what goods

and services are produced.

o (Not available everywhere)

Economic Security: • Economic systems seek to reassure people

that goods and services will be available when needed.

• That they can count on receiving expected payments on time.

• We also want the security of knowing that help is available if we are in need.

• Many governments provides a safety net or set programs to protect people who face unfavorable economic conditions.

• Such as layoffs, injuries, or national disasters.

• Social Security, Disaster relief, unemployment and disability insurance are examples.

Economic Growth • A nation’s economy must grow with

its population.

• So it can provide jobs for the new people joining the workforce.

• A nation’s economy must grow if people are going to have more income.

• With growth, the nation improves its standard of living or level of economic prosperity.

Economic Growth • Innovation plays a huge role

in economic growth.

• Innovation is the process of

bringing new methods,

products, or the ideas into

use.

Goals in Conflict: • Sometimes goals can be in conflict.

• Added regulation on the environment may prevent companies economic freedom to make money.

• Government spending money to provide health care for all their citizens,

• May slow economic growth because of the increase of taxes.

Traditional Economy: • A traditional economy is the

oldest and simplest of economic systems.

• Divided by strict gender roles.

• It relies on habit, custom, or ritual to answer the three key economic questions.

• There is little room for innovation or change.

• Usually based in agriculture and hunting and supplies the whole village and not just the family.

Discussion Question

• Do you see any benefits of a traditional

economy today?

POP QUIZ!!!!!!!!!!

Describe Factor payments.

• CA 12.2 (8)

Explain what entrepreneurs earn

if their enterprise succeeds.

• CA 12.2 (8)

Explain what entrepreneurs earn

if their enterprise succeeds.

CA 12.2 (8)

Explain profit.

CA 12.2 (8)

Explain what profit rewards.

CA 12.2 (8)

Explain Economic Efficiency:

CA 12.2 (8)

Explain what government seeks

to provide during unfavorable

conditions.

CA 12.3(1)

Describe goals in conflict:

CA 12.3(1)

Explain traditional economy.

ECN 4.4

Chapter 2: Section 2: Free Market

Objectives • WHAT: Explain the elements

of the Free Market System.

• WHAT: Explain how a Free Market System operates and see practical applications of this system in everyday life.

• WHY: ECN.4.4 Compare and contrast the different economic systems.

Luk_10:7 And in the same house

remain, eating and drinking such

things as they give: for the labourer

is worthy of his hire. Go not from

house to house.

• What are examples of economic freedom that we have?

• Freedom to own property.

• Freedom to get a job.

• Freedom to spend money on what you want to spend on.

• Americans’ highly values economic freedom.

Why Markets Exists

• A market is any arrangement that allows buyers and sellers to exchange things.

• Markets eliminate the need for any one person to be self-sufficient.

• None of us produces all we require to satisfy our needs and wants.

• Markets allows us to exchange the things we have for the things we want.

Specialization: • Instead of being self-sufficient, each of

us specializes in a few products or services.

• Specialization is the concentration of productive efforts of individuals and businesses on a limited number of activities.

• For example: Apple specializes in making computers not refrigerators. In and Out sells burgers and not pasta.

Specialization: • Specialization leads to efficient use

of capital, land, and labor.

• It is easier for people to learn one

task or a few tasks very well than to

learn them all.

• Because they concentrate on a few

tasks they can do their work

efficiently saving resources by

avoiding waste.

Discussion Question

• Is it better for a nation to be self-sufficient?

(Producing all its own goods and services)

Or is it better to commit to specialization?

Buying and Selling

• Without specialization markets would not be necessary.

• However, because each of us specializes in producing just a few goods or services.

• We need a mechanism that allows us to sell what we have produced and buy what we want.

• In a modern market-based economy, people typically earn income by specializing in particular jobs.

• They then use this income to buy the products that they want to consume.

Discussion Question

• Where do you see specialization in your

everyday life?

• School? Professional Sports? Jobs?

Voluntary Exchange:

• Markets by the choices made by the individual determining what gets made.

• How it is made.

• How much people can consume of the goods and services produced.

• Where individuals make their own decisions about what to buy and sell is a Free Market.

Household and Firms

• The participants in a free market economy are households and firms.

• A household is a person or group of people living in a single residence.

• Households own the factors of production, land, labor, and capital.

• They are also consumers of goods and services.

Household and Firms • A business or firm is an

organization that uses

resources to produce a product

or service, which it then sells.

• Firms transform inputs or

factors of production into

outputs or goods and services.

Factor and Product Markets: • Firms purchase factors of

production from households.

• This arena of exchange is called the factor market.

• Firms purchase or rent land.

• They hire workers, paying them wages or salaries for their labor.

• They also borrow money from households to purchase capital, paying households interests or profits in return.

Factor and Product Markets: • The arena in which households buy

the goods and services that firms produce is the product market.

• Households purchase the products made by firms with the money they received from firms in the factor market.

• The flow between the factor market and the product market is truly circular.

• Ecc_9:10 Whatsoever thy hand findeth to do, do it with thy might; for there is no work, nor device, nor knowledge, nor wisdom, in the grave, whither thou goest.

• “Woe unto him that buildeth his house by unrighteousness, and his chambers by wrong; that useth his neighbour's service without wages, and giveth him not for his work;” Jeremiah 22:13

• Job was the richest man of his time but what did he do?

• (Job 30:25) Did not I weep for him that was in trouble? was not my soul grieved for the poor?

• 1Ti_6:10 For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.

• (Rom 13:10) Love worketh no ill to his neighbour: therefore love is the fulfilling of the law.

• Those who receive pay for their labor should put in good time. They should be producers as well as consumers. As they obtain an education in these lines, they will become more and more able to do perfectly the work assigned to them. They will be ready to take hold of the work in any place.--Letter 87, 1901. {CS 270.1}

• In God's plan for Israel every family had a home on the land with sufficient ground for tilling. Thus were provided both the means and the incentive for a useful, industrious, and self-supporting life. And no devising of men has ever improved upon that plan. To the world's departure from it is owing, to a large degree, the poverty and wretchedness that exist today. {CT 275.3}

Discussion Question

• How do you feel about Ellen White’s counsel

that we should be both consumers and

producers and live off the land and be self-

sufficient? Do you think it is practical to be

not dependent on stores and businesses for

our daily necessities (food and water) as

much as possible as Ellen White counseled?

Chapter 2 Section 3: Central Planning

Objectives: • WHAT: Explain how a centrally

planned economy is organized.

• WHAT: Distinguish between socialism and communism.

• WHAT: Explain the use of central planning and its disadvantages by examining its history in the Soviet Union and China.

• WHY: ECN.4.4 Compare and contrast the different economic systems.

• (Act 20:35) I have shewed you

all things, how that so

labouring ye ought to support

the weak, and to remember the

words of the Lord Jesus, how

he said, It is more blessed to

give than to receive.

How Central Planning Works: • The government rather than individual

producers and consumers, answer key economic questions.

• A central bureaucracy decides what items to produce, how to produce them, and who gets them.

• The government directs workers to produce a certain number of trucks, so many yards of cotton fabric, and so on.

• Farmers are told what to plant and where to send their crops.

How Central Planning Works:

• Command economies oppose

private property, free market

pricing, competition, and

consumer choice.

• Free market forces of self-

interest and competition are

absent..

Socialism and Communism. • Socialism is not a single economic

system.

• Describes a range of economic and political systems based on the belief that wealth should be evenly distributed throughout society.

• Economic equity can exist only if the centers of economic power are controlled by the government.

• Or by the public as a whole, rather than by individuals or corporations.

Socialism and Communism.

• In some places like Sweden,

socialism coexists with free

market practices.

• Under this market socialism,

government uses its power of

taxation to redistribute wealth

and provide extensive services.

In Class Debate:

• Do you think the government should be

responsible for providing for the basic

needs of everyone and also providing for

the college education of its citizens?

Communism.

• Socialism gave rise to Communism.

• Communism is where the central government owns and controls all resources and means of production

• Makes all economic decisions.

• The belief is based on Karl Marx.

• Who thought under capitalism, profit created by the labor of workers would always end up to the Capitalists such as factory owners.

Communism.

• Communist governments have always been authoritarian.

• Governments limit individual freedoms and require strict obedience from their citizens.

• Every Communist nation had been dominated by a single dictator or political party.

The Soviet Union

• It was the world’s first communist state.

• Soviet Economic planners sought to build national power and prestige.

• Diverted their best land, labor and capital to the armed forces and heavy industry.

Two Communist Economies: • Heavy industry requires large capital

investment.

• Produces goods and such as chemicals or steel used in other industries.

• The decision to favor heavy industry had a harsh effect on factories that made consumer goods.

• They were stuck with leftover lower-quality resources.

• The goods available to consumers were few in number and poorly made, shortages were common.

Two Communist Economies Recap: • Soviet Union was the dominant

Communist nation but ended up disintegrating.

• Because the goods they provided were of poor quality and shortages were common;

• China took a more flexible approach and in the 1980s, China began to allow entrepreneurs more economic freedom.

The Chinese Economy:

• China: economy in transition

from state controlled to more

privately owned.

• The government is implementing

privatization, the process of the

government selling businesses

and goods to investors to have

them compete in the

marketplace.

Privatization:

• Is the process of selling

businesses or services

operated by the government

to individual investors.

• And then allowing them to

compete in the marketplace.

North Korea:

• North Korea: has an economy totally dominated by the government.

• The government owns all the property and all economic output.

• State run industries produce 95 percent of North Korea’s goods.

Activity

• What is Communism? Activity.

• Each row group act out what is

Communism.

• Need Six volunteers as (Workers)

• Need one person to distribute the wealth.

DISADVANTAGES OF CENTRALLY PLANNED

ECONOMIES

Economic Efficiency:

o Centrally planned economy, the government owns all production factors.

o The government fix wages.

o Workers lack the incentive to work faster or produce more.

o Inflexible to consumer demands and changing economic conditions.

Economic Freedom:

• Sacrifice individual freedoms to

pursue the goals of society.

• Discourages competition.

• Takes most of all economic

choices away from producers

and consumers.

Economic Growth:

• Command economies do not

reward innovation.

• In fact they discourage change.

Economic Equity:

• In theory Communism seeks to redistribute equity to the population.

• In practice the government and government officials enjoy higher incomes rather than the people.

• It has successfully met some goals such as guaranteeing jobs and income.

RECAP:

o Command economies are inefficient.

o All decisions made by Government.

o Takes away the choices of consumers and producers.

o Discourages change and innovation.

• (Act 2:4) And they were all filled with the Holy Ghost, and began to speak with other tongues, as the Spirit gave them utterance.

• “And all that believed were together, and had all things common; And sold their possessions and goods, and parted them to all men, as every man had need. And they, continuing daily with one accord in the temple, and breaking bread from house to house, did eat their meat with gladness and singleness of heart,” Acts 2:44-46.

Discussion Question

• Do you think Communism can work

today?

Chapter 2 Section 4: Mixed Economy

Objectives: • WHAT: Explain mixed

economies and see the

tension between free

market enterprise and

government involvement.

• WHY: ECN.4.4 Compare

and contrast the different

economic systems.

• (Psa 24:1) A Psalm of David.

The earth is the LORD'S, and

the fulness thereof; the world,

and they that dwell therein.

Laissez faire

• Early free market thinkers such

as Adam Smith.

• Believed that, left alone the

free market would provide the

greatest benefit for consumers.

• And raise the standard of

living.

Need for government intervention • Needs of modern society would be difficult to

meet in the marketplace.

• Governments supplies some needs in order to ensure that all members of society can benefit.

• This cannot be accomplished by the private sector.

• To insure all members of society receive a basic education, the government provides public schools, highways, law enforcement, etc.

• Governments also play a role in the economy by protecting property rights.

Need for government intervention

• The Fifth and Fourteenth Amendments to the Constitution declare that no person may be deprived of life, liberty, or property without due process of law.

• These amendments protect private property.

• Private Property is owned by individuals or companies and not by the government or the people as a whole.

• Government tries to make sure that exchanges in the marketplace are fair.

• Laws requires businesses to give honest information to consumers or block firms from joining together to prevent competition and fix prices.

Need for government intervention

• A Mixed economy is a market-

based economic system in

which the government is

involved to some extent.

• The degree of government

involvement varies from nation

to nation.

Discussion Question

• Laissez Faire Demonstration. Have a volunteer represent a business owner, and five workers with a government official aloof in a distance. Business owner is free to do what he pleases.

• Do you think the government should be actively involved in the economy with laws or regulations or do you think the government should leave the economy alone?

Balancing Needs and Freedom • Every society must assess its values and

prioritizes its economic goals.

• Some goals are better met by the open market, while others may be better achieved through government action.

• In addition, societies must evaluate the opportunity cost of pursuing each goal.

• What are you willing to give up?

• Are you willing to pay taxes to fund the military? Education?

• In Denmark, the government pays for medical school but have higher taxes.

Circular Flow Model of a Mixed Economy.

• Firms purchase labor, land, and

capital from households.

• (Purchase by employing workers)

Government does the same.

• The Government employs 2.7

million people including law

enforcement, TSA, etc.

Circular Flow Model of a Mixed Economy.

• Government also purchases

goods and services.

• They purchase computers

and phones from private

firms.

• Government also provides

goods and services such as

construction of roads, law

enforcement, etc.

Circular Flow Model of a Mixed Economy.

• Government also collect taxes from both households and businesses.

• Governments then transfer some of the money to businesses for variety of reasons,

• Such as providing funds to save a failing industry or making payments to disabled workers or Social Security.

Recap Hong Kong:

• Hong Kong was one of the world’s freest markets.

• Private sector rules with government protecting private property and allowing the economy to run on its own.

• Virtually no trade barriers and receptive to foreign investment.

• Banks are independent from government regulations and oversight.

RECAP: U.S.

• The U.S. Economy is a mixed system.

• The foundation of the U.S. economy is the free market.

• An economic system characterized by individual or corporate ownership of capital goods is called a free enterprise system.

• In a free enterprise system, investment in firms are made in a free market by private decisions.

• The American government keeps order, provides vital services and promotes the general welfare.

• Luk_10:7 And in the same house remain, eating and drinking such things as they give: for the labourer is worthy of his hire. Go not from house to house.

• For I was an hungred, and ye gave me meat: I was thirsty, and ye gave me drink: I was a stranger, and ye took me in: Naked, and ye clothed me: I was sick, and ye visited me: I was in prison, and ye came unto me. Then shall the righteous answer him, saying, Lord, when saw we thee an hungred, and fed thee? or thirsty, and gave thee drink? Matthew 25:35-37

• (1Jn 5:3) For this is the love of God, that we keep his commandments: and his commandments are not grievous.

Discussion Question

If you were a head of state of a nation, what economic system would you choose to adopt? (Group with those you agree with). And create a skit.

o Traditional

o Command/Communism

o Mixed Socialism

o Mixed Capitalism

o Laissez Faire Capitalism

POP QUIZ!!!!!!!!!!

B – Socialist A – Traditional

C – Mixed D – Communism

B – Socialist A – Traditional

C – Mixed-Socalism D – Communism

B – Socialist A – Traditional

C – Mixed-Free Market D – Communism

B – Socialist A – Traditional

C – Mixed D – Communism

B – Exact payment A – Cash

C – Government interference D – A job

• In our free market, you can buy most goods without

Video Activity

o When you watch the video answer the following questions.

o What is the purpose of the video?

o Who do you think is the audience?

o Is the video biased?

o Do you think the video was persuasive in its purpose?