Chapter 5 –Economic Systems

Chapter 5
Economics: The social science that examines how societies use scare resources
to produce and distribute goods and services that satisfy peoples’ wants and
Economic System: The way a society uses resources to satisfy its people’s
needs and wants.
Macroeconomics- Economics on a national and global scale. This concerns
economic decisions made by the governments.
Microeconomics—focuses on economic decisions made by individual people
and businesses.
Economic Resources
Societies vary in the Quality and Quantity of resources they have , but all
have economic resources.
•Land and Natural Resources
•Factories and Equipment
•Productive Workers
•Money to fund government programs, or to trade with other
Scarcity and Opportunity Cost
•Because society’s wants are unlimited and
resources are limited, it cannot supply
everything its people desire.
•This is called scarcity and it is the fundamental
problem that all economic systems try to solve.
•Every economic choice has an Opportunity
•(When resources are used for one economic
option, they cannot be used for other options.)
In establishing an economic system a society
must answer the following three questions….
•What goods and services will we produced?
•How will these goods and services be produced?
•Who should share the goods and services that are produced?
Traditional Economy
•The three economic questions are answered based on
traditional customs and beliefs.
•Families or groups live the way their ancestors did.
•There is little technology and industry.
--These societies are very rare today. A few still exist in rural, nonindustrial
areas in various parts of the world.
Command Economy
In this system, decisions about what to produce, how
and for whom are decided by a central government,
causing this to be know also as a controlled economy.
---The government control all the economic resources and
make all decisions.
---Individuals that live in Command Economies have nothing
to say about what is produced or how it is produced.
Market Economy
*In this system, decisions about what to produce, how, and for
whom are decided by individuals acting in their own self-interest.
*Individual and private companies own and control economic
resources such as businesses, factories, and farms. They decide
for themselves what goods to make and what services to offer.
-- The idea of free market is essential.
Mixed Economy
*A mixed economy is a combination of the command
and market economic systems.
*There is limited governmental control.
The idea of a free market is combined with some
degree of government control. Most of the world’s
economies fall into this category.
Economic goals of the U.S.
•Growth- an increase in the amount of goods and services
produced over time.
•Efficiency- Wise use of limited resources.
•Stability- A steady level of economic well being, without wild
up and downs.
•Justice—An economic system that treats all citizens fairly.
•Security– Support systems for citizens who face economic
hardships through no fault of their own.
Fundamental Characteristics of
the U.S. Economy
•Private Property. Individuals and groups are allowed to own economic resources
such as land and businesses. Consumers own the goods that they purchase.
•Freedom of choice. In the US economy, consumers freely choose how to spend
their money.
•Free Enterprise. The US economy is often called a system of private enterprise
or free enterprise. Individuals are free to own and control business enterprises.
•Limited government control Helps motive competition. In a free enterprise
system, businesses are allowed to compare for profit with a minimum of
government regulation. Limited governmental control over economic matters is
because individual economic freedom is so highly valued.