The 7 Goals of an Economy
1. Economic efficiency- Making the most of your
resources, an economy that can’t deliver goods isn’t
efficient.
2. Economic freedom- Freedom from government
intervention in the production and distribution of
goods and services
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 Economy
4. Safety Net- government programs that protect
people during bad economic times.
Examples5. Economic equity- How much should you get paid
for your services or lack of services.
6. Economic growth and innovation- Innovation
leads to economic growth, and economic growth
leads to a higher standard of living.
7. Value goals- Societies pursue additional goals, such
as environmental protection, universal medical care,
etc…
Economic Goals of a Society
•
•
Economic System- the method used by a society to
produce and distribute goods and services.
Three Economics Systems
1. Capitalism
2. Command
3. Mixed Economy
Market Economy (Capitalism)



Definition- economy based on private ownership
were individuals control the production, distribution
and sale of goods.
Key Person: Adam Smith- “Wealth of Nations”
Why do markets exist?
1. Markets exist because none of us produces
all the goods and services we require to satisfy
our needs and wants.
How is money and goods exchanged in a Free Market?
1. In a free market economy, households and
business firms use markets to exchange money
and products. Households own the factors of
production and consume goods and services.
The Forces in a Free Market



Self-interest- In every transaction, the buyer and
seller consider only their own personal gain. Selfinterest is the motivating force in the free market.
Competition- Producers in a free market struggle
for the dollars of consumers this is the regulating
force of the free market.
“Invisible hand”- The interaction of buyers and
sellers, motivated by self-interest and regulated by
competition, all happens without a central plan.
The 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- Strengths




Economic Efficiency- as a self regulating system
Capitalism is very efficient
Economic Growth- Free market encourages
innovation which leads to growth
Economic Freedom- offers the most economic
freedom
Additional Goals- offers the largest variety of
goods and services
Market Economy- Weaknesses

“Freedom” to starve, wealth is unevenly distributed

NO equity or fairness

NO motive to help the poor


Greed for profit can result in dangerous goods being
provided
Poor Product safety
Command Economy



Definition- the government owns both land and capital.
The government decides what to produce, how much to
produce, and how much to charge.
Key Person- Karl Marx: “Communist Manifesto”
Two types of Command Economies1. 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)
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 System



Agriculture- the government created large
state-owned farms and collectives for most of
the country’s agricultural production.
Industry- planners favored heavy-industry
production (such as steel and machinery),
over the production of consumer goods.
Consumers- Consumer goods are scarce and
usually of poor quality
Centrally Planned

Strength- Everyone knows what the plan is
and is focused on completing that plan.

Weaknesses-
1. Unable to pull this off in a modern country
(countries are too big).
2. Inefficient and leads to shortages of needed
items- but a surplus of non-essential items.
(Underutilization)
3. Responds slowly to change
4. No worker incentives
Mixed Economies


Simple! An economy that combines two
or more of the other economies listed.
What type of economy does the United
States have?
• You guessed correct! A mixed economy
• We have a mixture of market and
command economies.
• Most products are determined by
supply/demand (market economy) but
some products like milk have a set price
determined by the government.
Traditional Economy




A traditional economy is where the price of goods
and services stay the same over time.
There are a few 3rd world countries still using this
system. It usually involves bartering.
Bartering: Trading goods and services for other
goods and services.
In a traditional economy, 1 goat may equal 10
bushels of wheat. 10 years from now what will 1
goat equal?
Traditional Economies and the Inuit
What are the three
Economic Questions?
The Three Basic Economic
Questions
1. What goods and services should be
produced?
2. How should these goods and services
be produced?
3. Who consumes these goods and
services?
Difference between
goods and services


A good is a tangible object.
Something you can see, touch,
smell, taste, consume, or use. An
iPad is an example of a good.
A service is an intangible object. You
can’t touch, taste, or feel it.
Services are when you hire someone
to do something for you.
What goods and services should
be produced?


Basic Needs- food, clothing and shelter
Problems in Modern Societies- How many resources do we devote to national
defense, education, public health, welfare,
consumer goods?
- What consumer goods should
we produce?
How should these goods and
services be produced?

Although there are countless ways to create all the
things we want and need, all require land, labor and
capital

The factors of production can be combined in
different ways

Should we produce electricity with oil, solar power,
nuclear, water or coal?

Should teachers have 20 or 50 students in a class?
Who consumes these goods and
services?

How do we distribute abundance?
• 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 lives in a mansion and who lives in the projects?
• Factor payments- the income people receive for supplying
factors of production- land, labor, capital and
entrepreneurship.
1. Examples
Who gets what, is the key difference between economic
systems today. Every society answers these questions
based on their social goals and values
Four Factors of Production
We can’t satisfy all of our wants and needs
BECAUSE what is required to make the goods and
services are SCARCE
THE FOUR FACTORS OF PRODUCTION (resources)
 Land: Where your product will be made/created
 Labor: The people hired to create your product
 Capital: Physical, Financial, Human (see next
slide)
 Entrepreneurs: The person/people who combine
the other factors of production to create a
business. What is the their main goal?

3 Types of Capital
(All are needed)


Human Capital: Your skills and
abilities
Physical Capital: All the products
used to create the final product.
• Cheese, sausage, dough, oven, etc.
used to bake a pizza

Financial Capital: Money needed to
begin a business
Become an inventor


In your notebook, make a short list
(at least 5) of goods or services you
wish were possible or capable of
being created.
Examples (don’t use these for your
own):
• Clicker Remote that freezes time
• Time machine
• Don’t use money as the product you
want to create (Example: Money Tree)
Group of Inventors

Create a small group of people in the
class you can work with in and out of
class. You will need at least 3 people
in your group; no more than 5
people please.
Group Project:
Creating a New Product


Share the ideas each person in your
group came up with.
Pick the best idea or combine a few
ideas into a better idea.
*Video Project*