Session 2
Economic Systems
Disclaimer: The views expressed are those of the presenters and do not necessarily
reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System.
TEKS
(1) Economics. The student understands the concepts
of scarcity and opportunity costs. The student is
expected to:
(B) describe how societies answer the basic
economic questions;
TEKS
(5) Economics. The student understands free enterprise, socialist, and
communist economic systems. The student is expected to:
(A) describe the basic characteristics of economic systems,
including property rights, incentives, economic freedom,
competition, and the role of government;
(B) compare the free enterprise system, socialism, and
communism using the basic characteristics of economic
systems;
(C) examine current examples of free enterprise, socialist, and
communist economic systems;
(D) understand that the terms free enterprise, free market, and
capitalism are synonymous terms to describe the U.S. economic
system
TEKS
(6) Economics. The student understands the basic
characteristics and benefits of a free enterprise system. The
student is expected to:
(A) explain the basic characteristics of the U.S. free enterprise
system, including private property, incentives, economic
freedom, competition, and the limited role of government;
(B) explain the benefits of the U.S. free enterprise system,
including individual freedom of consumers and producers,
variety of goods, responsive prices, investment opportunities,
and the creation of wealth
(D) analyze the costs and benefits of U.S. economic policies
related to the economic goals of economic growth, stability, full
employment, freedom, security, equity (equal opportunity
versus equal outcome), and efficiency.
Teaching the Terms
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Free enterprise
Communism
Socialism
Incentives
Property rights
Competition
Prices
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Consumers
Producers
Resource allocation
Economic freedom
Role of government
Basic Economic Questions
What to produce?
• What should be made using available resources?
How to produce?
• What combination of resources should be used?
Who will consume?
• How will production be allocated?
Two Ends of the Spectrum
Command
Market
Economic Systems
Communist
(command)
Free
Enterprise
(market)
Socialist
(mixed)
Traditional
Comparing Economic Systems
Property
Rights
Incentives
Economic
Freedom
Competition
Role of
Government
Communism
Communism
Communism
Communism
Communism
Socialism
Socialism
Socialism
Socialism
Socialism
Free
Enterprise
Free
Enterprise
Free
Enterprise
Free
Enterprise
Free
Enterprise
Economic and Social Goals
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Freedom
Growth
Stability
Equity
Efficiency
Economic Freedom
• Consumers decide how to spend or save their
incomes
• Workers are free to choose a career or change
jobs
• People are free to establish new businesses or
close old ones
Economic Growth
• An increase in the production of goods and
services over time
• Affects the standard of living in a society
Economic Stability
• Price stability
– Avoiding inflation, a rise in the average price level
– Avoiding deflation, a fall in the average price level
• Full employment – using all of an economy's
scarce resources (e.g. labor)
Economic Equity
• Fairness in economic dealings
– Evaluating transactions in the marketplace
– Overall distribution of income
• Criteria for judging equity
– Equal opportunity
– Equal outcomes
Economic Efficiency
• Not wasting scarce resources
• Two goals
– Produce the goods and services people want most
– Economize resources in the production of goods
and services to minimize the real costs of
production
Activity
• Rank the economic and social goals from least
important to most important.
– As an individual
– As a group
– As a class
• Discuss how command and market economies
would address each goal.
Benefits of the Free Enterprise System
• Individual freedom of consumers and
producers
• Variety of goods
• Responsive prices
• Investment opportunities
• Creation of wealth
Hybrid Systems
Market
Socialism
Social
Democracy
State
Capitalism
Questions?