Read to Learn Describe the three basic economic questions each country must answer to make decisions about using their resources. The Main Idea Scarcity of economic resources forces every country to develop an economic system that determines how resources will be used. Each economic system has its advantages and disadvantages. Key Concepts Basic Economic Questions Different Types of Economies Focus on real life, page 17 Which seems the most like the economic system in the US? The three economic questions All economies (or nations) of the world face the basic economic problem of scarcity of resources. Each country must decide how the available resources will be used to meet the needs and wants. *Basic Economic Questions* What goods and services should be produced? Deciding to use a resource for one purpose means giving up the opportunity to use it for something else. What is this called? How should it be produced? The methods and labor used as well as the quality of items produced are important factors. What needs and wants will be satisfied with the goods and services produced? In most societies, people can have as many goods and services as they can afford to buy. 1. What to produce? Nations differ in the type and amount of resources available. Can you think of any? Nations differ in their needs. Can you think of any? Very difficult – if a country spends too much in one area, there may not be enough resources to meet other needs. 2. How to produce? Nations must decide what combination of resources will best suit its circumstances. Ex- we still are a great agricultural (farming) country but do it much more efficiently now. How? Two hundred years ago – 80% pop farmed Today – 3% pop farms but produce more goods. 3. What needs and wants to satisfy? A country must determine which wants and needs are most critical when deciding what to produce…because we know a country can’t produce everything so they must choose. Different Types of Economies Different economic systems answer the three basic economic questions in different ways. A country usually follows one of the following types of economies economic systems A nation’s plan for answering the three economic questions 4 main types of Economic Systems Command Economy Market Economy Traditional Economy Mixed Economy You teach the teacher With your assigned partner: – Create a PowerPoint presentation with a title slide – Topic: You need to teach me about the four different types of economies and want to use the PP as a guide. – Don’t forget! PowerPoint slides aren’t meant to have tons of text, USE BULLETS! – Add pictures, word art, and animations to make the presentation more exciting. Command Economies In a command economy, the government owns and controls all the resources and businesses. command economy The resources are owned and controlled by the government. Command Economies Characteristics of a Command Economy The government dictates what will be produced, how it will be produced, and who will get the goods There is little choice of what to buy Goods are not considered necessities Prices are controlled by the state There is no competition and little incentive to produce a better product Highly skilled workers may earn the same as low-skilled workers Command Economies In a moderate command economy, there is some form of private enterprise, but the state owns major resources. Market Economies A market economy can also be called a capitalism. market economy The resources are owned and controlled by the people of the country Market Economies The 3 economic questions are answered by individuals through buying and selling in the marketplace Marketplace – supermarket, Internet, mall, business office or even a flea market…pretty much anywhere where money is traded Market Economies Competition among similar businesses is one of the basic characteristics of a free enterprise system. Market Economies Characteristics of a Market Economy Resources are privately owned Citizens can own their own homes, land, and businesses Business owners decide how their businesses will be run Business owners decide what to produce and sell Business owners decide what to charge Government works to promote free trade and prevent unfair trade practices Consumers choose their occupations and where to live There is an uneven distribution of income Traditional Economies A traditional economy is “old school” No progression to new trends. Less developed countries use it. traditional economy Goods and services are produced the way it has always been done. Mixed Economies Most nations have a mixed economy, which combines elements of capitalism and socialism (public ownership) along with the idea of the government still having the final say mixed economy Combines elements of the command and market economies. The U.S. Economic System •U.S. is a Market Economy capitalism •Individual owners are free to decide what to produce and buy. •Individual freedom is vital to the success of the U.S economy. The private ownership of resources by individuals, rather than by the government. Other names The US economy is also known as a free enterprise or private enterprise. Why do you think it’s called free or private enterprise? ***The U.S economic system is based on four important principles: Private Property Freedom of Choice Profit Competition (leave some space after each of these, going to talk about them) Private PropertyMeans you can own, use, or dispose of things of value. In the U.S. you can own anything you want (as long as it’s legal) and do what you want with it Freedom of ChoiceYou can make decisions independently and must accept the consequences of those decisions. Only when individual decisions harm others will the government regulate freedom of choice ProfitIs the money left from sales after all of the costs of operating a business have been paid. Profit is at the heart of the private enterprise system…people enjoy the challenge of running their own business and want to do well and also make a profit. Competition•Forces businesses to improve products, keep costs low, provide effective customer service and search for new ideas. •If they don’t—who will???? competition The rivalry among businesses to sell their goods and services Competition Article 1. In a market system, what determines how many goods and services an individual can buy? It is through one’s income—mostly generated by working. 2. What type of economy does the US have? Market economy. Decisions are made in the market rather than by the government.