The 7 Goals of an EconomyThe 7 Goals of an Economy1. Economic efficiency-1. Economic efficiency- Making the most of your

resources, an economy that can’t deliver goods isn’t efficient.

2. Economic freedom-2. Economic freedom- Freedom from government intervention in the production and distribution of goods and services

3. Economic security and predictability-3. Economic security and predictability- Assurance that goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster

The 7 Goals of an EconomyThe 7 Goals of an Economy4. Safety Net-4. Safety Net- government programs that protect

people during bad economic times.

Examples-

5. Economic equity-5. Economic equity- How much should you get paid for your services or lack of services.

6. Economic growth and innovation-6. Economic growth and innovation- Innovation leads to economic growth, and economic growth leads to a higher standard of living.

7. Value goals-7. Value goals- Societies pursue additional goals, such as environmental protection, universal medical care, etc…

Economic Goals of a SocietyEconomic Goals of a Society• Economic System-Economic System- the method used by a society to

produce and distribute goods and services.

• Three Economics SystemsThree Economics Systems

1. Capitalism

2. Command

3. Mixed Economy

Market Economy (Capitalism)Market Economy (Capitalism) Definition-Definition- economy based on private ownership were economy based on private ownership were

individuals control the production, distribution and sale of individuals control the production, distribution and sale of goods. goods.

Key Person:Key Person: Adam Smith- Adam Smith- “Wealth of Nations”“Wealth of Nations”

Why do markets exist?Why do markets exist?1. Markets exist because none of us produces 1. Markets exist because none of us produces all the goods and services we require to satisfy all the goods and services we require to satisfy our our

needs and wants.needs and wants.

How is money and goods exchanged in a Free Market?How is money and goods exchanged in a Free Market?1. In a free market economy, households and 1. In a free market economy, households and

business firms use markets to exchange money business firms use markets to exchange money and and products. Households own the factors of products. Households own the factors of production and production and consume goods and services.consume goods and services.

The Forces in a Free MarketThe Forces in a Free Market Self-interest-Self-interest- In every transaction, the buyer and In every transaction, the buyer and

seller consider only their own personal gain. Self-seller consider only their own personal gain. Self-interest is the motivating force in the free market.interest is the motivating force in the free market.

CompetitionCompetition- - Producers in a free market struggle for Producers in a free market struggle for the dollars of consumers this is the regulating force of the dollars of consumers this is the regulating force of the free market.the free market.

““Invisible hand”-Invisible hand”- The interaction of buyers and The interaction of buyers and sellers, motivated by self-interest and regulated by sellers, motivated by self-interest and regulated by competition, all happens without a central plan.competition, all happens without a central plan.

The Principles of Free EnterpriseThe Principles of Free Enterprise

1. Profit Motive • The drive for the

improvement of material well-being.

2. Open opportunity • The ability for anyone to

compete in the marketplace.

3. Legal equality • Equal rights to all.

4. Private property rights• The right to control your

possessions as you wish.

5. Free contract • The right to decide what

agreements in which you want to take part.

6. Voluntary exchange • The right to decide what

and when you want to buy and sell a product.

7. Competition • The rivalry among sellers

to attract consumers.

Market Economy- StrengthsMarket Economy- Strengths Economic Efficiency-Economic Efficiency- as a self regulating system as a self regulating system

Capitalism is very efficientCapitalism is very efficient

Economic Growth-Economic Growth- Free market encourages Free market encourages innovation which leads to growthinnovation which leads to growth

Economic Freedom-Economic Freedom- offers the most economic offers the most economic freedom freedom

Additional Goals-Additional Goals- offers the largest variety of goods offers the largest variety of goods and servicesand services

Market Economy- WeaknessesMarket Economy- Weaknesses ““Freedom” to starve, wealth is unevenly distributedFreedom” to starve, wealth is unevenly distributed

NO equity or fairnessNO equity or fairness

NO motive to help the poorNO motive to help the poor

Greed for profit can result in dangerous goods being Greed for profit can result in dangerous goods being providedprovided

Poor Product safetyPoor Product safety

Command EconomyCommand Economy Definition- Definition- the government owns both land and capital. the government owns both land and capital.

The government decides what to produce, how much to The government decides what to produce, how much to produce, and how much to charge.produce, and how much to charge.

Key Person-Key Person- Karl Marx: Karl Marx: “Communist Manifesto”“Communist Manifesto”

Two types of Command Economies-Two types of Command Economies-

1. 1. Socialism- is a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society. (Welfare Card)(Welfare Card)

2. 2. Communism- is a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the government. (Hammer and Sickle)

Centrally Planned SystemCentrally Planned System Agriculture-Agriculture- the government created large the government created large

state-owned farms and collectives for most of state-owned farms and collectives for most of the country’s agricultural production.the country’s agricultural production.

Industry-Industry- planners favored heavy-industry planners favored heavy-industry production (such as steel and machinery), production (such as steel and machinery), over the production of consumer goods. over the production of consumer goods.

Consumers-Consumers- Consumer goods are scarce and Consumer goods are scarce and usually of poor qualityusually of poor quality

Centrally PlannedCentrally Planned Strength-Strength- Everyone knows what the plan is Everyone knows what the plan is

and is focused on completing that plan.and is focused on completing that plan.

Weaknesses-Weaknesses- 1. Unable to pull this off in a modern country 1. Unable to pull this off in a modern country

(countries are too big).(countries are too big).

2. Inefficient and leads to shortages of needed 2. Inefficient and leads to shortages of needed items- but a surplus of non-essential items. items- but a surplus of non-essential items. (Underutilization)(Underutilization)

3. Responds slowly to change3. Responds slowly to change

4. No worker incentives4. No worker incentives

Mixed EconomiesMixed Economies Simple! An economy that combines two Simple! An economy that combines two

or more of the other economies listed.or more of the other economies listed. What type of economy does the United What type of economy does the United

States have?States have?• You guessed correct! A mixed economy You guessed correct! A mixed economy • We have a mixture of market and command We have a mixture of market and command

economies. economies. • Most products are determined by Most products are determined by

supply/demand (market economy) but supply/demand (market economy) but some products like milk have a set price some products like milk have a set price determined by the government.determined by the government.

Traditional EconomyTraditional Economy A traditional economy A traditional economy is where the price of goods is where the price of goods

and services stay the same over time. and services stay the same over time. There are a few 3There are a few 3rdrd world countries still using this world countries still using this

system. It usually involves system. It usually involves barteringbartering. . BarteringBartering: Trading goods and services for other : Trading goods and services for other

goods and services.goods and services. In a traditional economy, 1 goat may equal 10 In a traditional economy, 1 goat may equal 10

bushels of wheat. 10 years from now what will 1 bushels of wheat. 10 years from now what will 1 goat equal?goat equal?

Traditional Economies and the InuitTraditional Economies and the Inuit

What are the three What are the three Economic Questions?Economic Questions?

The Three Basic Economic The Three Basic Economic QuestionsQuestions

1. What goods and services should be 1. What goods and services should be produced? produced?

2. How should these goods and services 2. How should these goods and services be produced? be produced?

3. Who consumes these goods and 3. Who consumes these goods and services?services?

Difference between Difference between goods and servicesgoods and services

A A goodgood is a tangible object. is a tangible object. Something you can see, touch, smell, Something you can see, touch, smell, taste, consume, or use. An iPad is an taste, consume, or use. An iPad is an example of a good.example of a good.

A A serviceservice is an intangible object. You is an intangible object. You can’t touch, taste, or feel it. Services can’t touch, taste, or feel it. Services are when you hire someone to do are when you hire someone to do something for you. something for you.

What goods and services should What goods and services should be produced?be produced?

Basic Needs-Basic Needs- food, clothing and shelter food, clothing and shelter

Problems in Modern Societies-Problems in Modern Societies-

- How many resources do we devote to national - How many resources do we devote to national defense, education, public health, welfare, defense, education, public health, welfare,

consumer goods?consumer goods?

- What consumer goods should - What consumer goods should we produce?we produce?

How should these goods and How should these goods and services be produced?services be produced?

Although there are countless ways to create all the Although there are countless ways to create all the things we want and need, all require land, labor and things we want and need, all require land, labor and capitalcapital

The factors of production can be combined in The factors of production can be combined in different waysdifferent ways

Should we produce electricity with oil, solar power, Should we produce electricity with oil, solar power, nuclear, water or coal?nuclear, water or coal?

Should teachers have 20 or 50 students in a class?Should teachers have 20 or 50 students in a class?

Who consumes these goods and Who consumes these goods and services?services?

How do we distribute abundance?How do we distribute abundance?• Who gets to eat a balanced diet and who doesn’t?Who gets to eat a balanced diet and who doesn’t?• Who get to buy a luxury car and who can’t afford one?Who get to buy a luxury car and who can’t afford one?• Who lives in a mansion and who lives in the projects?Who lives in a mansion and who lives in the projects?• Factor payments- the income people receive for supplying Factor payments- the income people receive for supplying

factors of production- land, labor, capital and factors of production- land, labor, capital and entrepreneurship. entrepreneurship.

1. Examples1. Examples

Who gets what, is the key difference between economic Who gets what, is the key difference between economic systems today. Every society answers these systems today. Every society answers these

questions based on their social goals and valuesquestions based on their social goals and values

Four Factors of ProductionFour Factors of Production

We canWe can’’t satisfy all of our wants and needs t satisfy all of our wants and needs BECAUSE what is required to make the goods and BECAUSE what is required to make the goods and services are SCARCEservices are SCARCE

THE FOUR FACTORS OF PRODUCTION (resources)THE FOUR FACTORS OF PRODUCTION (resources) Land: Where your product will be made/createdLand: Where your product will be made/created Labor: The people hired to create your productLabor: The people hired to create your product Capital: Physical, Financial, Human (see next Capital: Physical, Financial, Human (see next

slide)slide) Entrepreneurs: The person/people who combine Entrepreneurs: The person/people who combine

the other factors of production to create a the other factors of production to create a business. What is the their main goal?business. What is the their main goal?

3 Types of Capital3 Types of Capital(All are needed)(All are needed)

Human Capital: Your skills and Human Capital: Your skills and abilitiesabilities

Physical Capital: All the products Physical Capital: All the products used to create the final product.used to create the final product.• Cheese, sausage, dough, oven, etc. Cheese, sausage, dough, oven, etc.

used to bake a pizzaused to bake a pizza Financial Capital: Money needed to Financial Capital: Money needed to

begin a businessbegin a business

Become an inventorBecome an inventor

In your notebook, make a short list (at In your notebook, make a short list (at least 5) of goods or services you wish least 5) of goods or services you wish were possible or capable of being were possible or capable of being created. created.

Examples (don’t use these for your Examples (don’t use these for your own):own):• Clicker Remote that freezes timeClicker Remote that freezes time• Time machineTime machine• Don’t use money as the product you want to Don’t use money as the product you want to

create (Example: Money Tree)create (Example: Money Tree)

Group of InventorsGroup of Inventors

Create a small group of people in the Create a small group of people in the class you can work with in and out of class you can work with in and out of class. You will need at least 3 people class. You will need at least 3 people in your group; no more than 5 people in your group; no more than 5 people please. please.

Group Project:Group Project:Creating a New ProductCreating a New Product

Share the ideas each person in your Share the ideas each person in your group came up with. group came up with.

Pick the best idea or combine a few Pick the best idea or combine a few ideas into a better idea.ideas into a better idea.

*Video Project**Video Project*