ECONOMIC SYSTEMS
• Capitalism: No government regulation or control. Everything it
based on private ownership
• Socialism: A mixture – some government control, some private
ownership. Government usually responsible for welfare of citizens
• Communism: Governments controls and regulates everything. No
private ownership
• Private ownership – owned by individuals
• Public ownership – owned by government
ECONOMIC SYSTEMS
Characteristic
Free Enterprise
Socialism
Communism
Property rights
Individual
Collective
Government
Incentives
Profit
Economic freedom
Total
Limited
None
Competition
Lots
Little
None
Role of the
government
Little or none
Varies
Total
ECONOMIC PHILOSOPHERS
• You will be put into groups
• Each group will receive the list of basic characteristics of economic
systems
• Each group will also be given information on Friedrich Havek,
Milton Friedman, John Maynard Keynes, and Adam Smith
• Define your basic characteristics and explain the impact each
philosopher had on the US free enterprise system
• One paper per group, make sure everyone’s names are on it
BENEFITS AND POLICY
• You will get in groups of 3
• You will receive a list of benefits of the US free enterprise system
and a description of each as well as examples of changes in
economic policy
• Research current economic policies and decide which
characteristics are being affected and how
• You will present your finings to the class
ASSIGNMENT
• Your group from yesterday has been given the opportunity to
advice the current administration about possible changes to their
economic policies.
• Topics to consider:
• High rate of unemployment
• Government regulation vs. government deregulation
• Energy efficiency
• Discuss, research and develop a recommendation to improve the
economy based on one of these topics
• You will present your proposal to the class
SCARCITY
•
What do you want to do after you graduate? Make a list of everything you will
need to accomplish this goal
•
Circle any items you DO NOT HAVE right now.
•
What do you think scarcity means? What in your life is scarce?
VOCABULARY TO KNOW (AND WRITE DOWN)
• Scarcity – the condition of unlimited wants and limited resources
which cause people to not be able to have all of the good and
services they desire .
• Choice – deciding between opportunities, which results in
opportunity cost decisions
• Opportunity cost – the next best alternative use of resources
SCARCITY ACTIVITY
•
With a partner read through each statement and decide if there is a scarcity or
not. Mark “S” if it is scarce and “NS” if it is not scarce. It is due in 15 minutes
THE BASIC ECONOMIC PROBLEM
Our resources are limited, yet our wants and needs are unlimited. A society has to
choose how best to provide for the needs of its people.
BASIC ECONOMIC QUESTIONS
What to produce? – This is a production choice. What are you going to make with
scarce resources?
How to produce? – This is a resource choice. How much of each resource will be
used? Will it be labor intensive because you have abundant, cheap labor, or will it
be capital intensive because you have abundant technology and capital goods?
For whom to produce? – This is an allocation choice. Who gets the products after they
are produced? How is this decided, by the government or in the marketplace?
FACTORS OF PRODUCTION
Land – all natural resources
Labor – any human effort, physical or mental, that goes into producing goods and
services
Capital – man-made goods used in the production of goods and services, sometimes
called capital goods (e.g., sewing machine used to make jeans); also the money
used to purchase resources needed to produce goods and services
Entrepreneurship – person in a free enterprise or capitalistic economy that creatively
combines the other three factors to create a new, or different product
BASIC ECONOMIC PROBLEMS GRAPHIC
ORGANIZER
Follow along with me as we discuss the basic economic problems everyone faces
Words/Phrases used:
People have unlimited needs and wants
Scarcity
Resources are limited
Choices
Land
What to produce
Labor
How to produce
Capital
For whom to produce
Physical
Human
Entrepreneurship
OPPORTUNITY COST AND CHOICES
You will one of three different charts to practice opportunity cost, scarcity, an choices.
Complete and with a partner. Due by the end of the period.
PRODUCTIONS POSSIBILITY CURVE
•
Production Possibilities Curve (or PPC): It shows the possible combination of
goods or types of goods that could be produced in an economy.
•
A Production Possibilities Curve demonstrates the concept of “opportunity cost”.
•
Resources are limited. And to take on a new activity would require using some of
the resources used in the original activity.
•
This is assuming that all resources (land, labor, and capital) are being used to
their fullest potential and no more resources exist. This concept is called
efficiency.
•
If all resources are not being used efficiently, the country is experiencing
“underutilization” of resources more commonly known as a recession
ROBINSON CRUSOE PPC
•
We’ll assume that Crusoe and Friday had access to a market for coconut milk and
pineapple juice on a sparsely inhabited nearby island. They are totally efficient in
production if they are operating anywhere on the production possibilities curve. If
they produce inside the curve they are underutilizing their resources.
•
On the “y axis” of the graph (left side), the possible quantities for production of
coconut juice are provided. On the “x axis” (bottom) the possible quantities for
pineapple juice are provided. The table at the bottom of the page shows some
possible combinations of the two goods that could be made efficiently.
ROBINSON CRUSOE PPC
•
Place a point on the curve where 25 quarts of coconut milk are being produced and
label it “A”.
•
At this point, how many gallons of pineapple juice are being provided?
•
Place a point on the curve where 20 gallons of pineapple juice are being produced.
Label it point “B.”
•
How many quarts of coconut milk are being produced at point “B”?
•
What was the opportunity cost in terms of coconut milk production when pineapple
juice production was increased from 10 gallons to 20 gallons?
•
Now place a point on the graph where 15 quarts of coconut milk and 10 gallons of
pineapple juice are being produced. Label it “C”. Did this point reach the curve?
•
You can see that by drawing a diagonal line from point “C” over to the curve, that
Crusoe and Friday are short in production by five gallons of pineapple juice and five
quarts of coconut milk in their current underutilization of available resources.
ROBINSON CRUSOE PPC
•
The economy of a nation sometimes can increase the amount of resources
available. It may find new mineral resources (land), have an in-migration of
talented workers (labor), improve its banking system (capital), or acquire new
territory (land). In this situation, that nation has greater production possibilities.
This is represented on the Production Possibility Graph as a shift to the right in
the PPC. Now, to attain efficiency, it must effectively utilize those new resources.
•
•
Conversely, the nation’s economy could deplete or lose some of its resources. In
such a case, the PPC shifts to the left. Efficiency is attained according to the new
production possibilities.