How to produce?

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The Last Word: Ch 2 Review (online or paper)
FrontPage: Who or what causes all of this stuff to get to these
places?
The Last Word: Ch 2 Review (online or paper) due the day of the quiz…
or…
Capitalists do it
with an invisible
hand…
Chapter 2, Section 1

Did you ever think that [teaching about]
economics is a lot like peeing down your leg?
It seems hot to you, but it never does to
anyone else.”
- President
Lyndon B.
Johnson
Introduction
•You probably have set
some goals in your life,
such as going to college,
learning a trade, or
opening a business.
• If you were to compare
your personal goals to
the goals of a North
Korean teenager, the lists
might vary widely.
Introduction
•One of the reasons for this variance is that each
of these persons lives in a community or nation
with a different economic system, or way of
determining how to use scarce resources to
satisfy people’s wants and needs.
• In this section, you’ll learn about the different
kinds of economic systems in the world.
The Three Basic Economic Questions



What to produce?
How to produce?
Who to produce for?

Nations must balance
available resources
with desired
products/services
 Will more butter be
produced or more guns?
 Will we push for medical
improvements or try to
prevent deaths from
natural disasters?
 Do we need to stop
making VCRs?

How goods and services will
be made.
 What methods will we use?
 Will more workers be hired?
 Will capital goods be used
instead of hiring more
workers?
▪ Self-checkout or more cashiers?

After goods and services are produced, how will
the goods and services be distributed among a
society’s members?
 Prices
 Government bureaucrats
 Majority rule
 Tradition, or religion
 First-come, first-serve

Which questions are being answered when the
following occurs?

Apple decides to hire
more tech workers to iron
out potential issues before
the release…

Apple decides to create
the iPhone 6, rather than
moving to another line of
products (payment system,
for example…)

Apple markets the iPhone 6
for a price starting at $199
and up…

How a society answers these three questions
is what determines the type of economic
system that country has
▪ Often times, WHO answers these questions in a society
can tell you a lot about that nation’s economy AND
political system…
 We can also look at the GOAL(s) of the society to
find out their economic system

Also, who owns the “Means of production”?
 Non-human capital, technology and resources


GOAL: Survival
3 questions answered by/means
of production owned by: Tribe,
family, tradition, beliefs
 Handed down for generations
 Everyone has a role
 Not as productive due to lack of
technological advancement and
surplus goods
 A tribe in the jungle of the Amazon
would be an example of this system
•GOAL: Equal and Fair
Distribution to all
•3 questions answered
by/means of production
owned by : Government
 Officials consider the needs of the country and allocate
resources accordingly
 Wants of consumers are rarely considered
 North Korea and Cuba are examples; Soviet Union used
to be


GOAL: Efficiency, Free choice, profit
3 questions answered by/means of production owned
by individuals
 Consumers spend money as they wish, sell their labor
 Producers decide what goods and services they will offer
• Seeking your own interests
benefits others
• “Invisible hand” –
consumer demand drives
production, creates profits (and
losses), improves products,
benefits consumers and
producers

State planners in country A met to decide what the
country should focus on producing. After much
deliberation, they decided it would be in the country’s
best interest to use their limited resources to produce
automobiles instead of other consumer goods, like
electronics or textiles.

The state planners passed their decisions down to
factories, and allocated to them raw materials,
workers, and other resources needed to produce
automobiles. Factories were then told how much they
should produce with these resources and who the final
products should be shipped to.

In country B, business owners decide what to produce, how
much to produce, and who to produce for. The CEO of Black
and Gold Audio, one of the leading audio producers in the
country, recently decided to increase production levels of
the country’s newest mp3 player, and at the same time
decrease production levels of their most popular CD player.

The reason for the emphasis on mp3 players is that demand
for CD players has decreased dramatically as mp3
technology has taken over the market. Simply put, there is
more profit to be made in the mp3 market.

In country C, people rarely engage in market
transactions. For the most part, they don’t need to.
Families grow their own vegetables and raise their
own animals or hunt to get meat.

Certain times get tough for people in country C, like
when the winters are especially cold or animals
change their migration patterns.

For this reason, it is important that families stock up in
“good times” and develop relationships with
neighbors with whom they can share or trade.

In country D, business owners make most economic
decisions. As long as they abide by fair trade policies, they
can decide what to produce, how to produce and for whom
to produce without government intervention.

These decisions are made by business owners depending on
what happens in the market.

For example, a computer manufacturer recently developed a
new gaming system, but decided to wait until closer to the
holidays to release this system to the public because it
believed that anticipation among consumers would allow
the company to charge a higher price for the system.
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