Three Economic Questions
What Goods and Services should be
produced?
 How should these goods and services
be produced?
 Who consumes these goods and
services?

Economic Goals

Economic Efficiency
 Making the most of resources

Economic Freedom
 Freedom of gov. intervention in production and
distribution

Economic Security and Predictability
 Assurance that goods and services will be available

Economic Equity
 Fair distribution of wealth

Economic Growth and Innovation
 Leads to a higher standard of living
Small Group Discussion

Discuss with 2-3 other classmates
 What economic goals the United States is
accomplishing
○ Examples of those goals
 What goods are produced in the U.S.
Four Economic Systems
Traditional Economies
 Market Economies
 Centrally Planned Economies
 Mixed Economies

Free Market Economy
Market-arrangement that allows buyers
and sellers to exchange things
 Why?

 Specialization
Free Market Economy Cont.

In a free market system, individuals and
privately owned businesses own the
factors of production, make what they
want, and buy what they want
Circular Flow Diagram
Household
 Firm

 organization using the resources
 Transforms inputs (factors of production)
into outputs (products)

Factor Market
 Purchasing factors of production from
households

Product Market
 Purchase the goods and services that firms
produce
Self-Regulating Nature of
Marketplace

How do they all cooperate?
 Self Interest
Adam Smith
Consumers in pursuit of their selfinterest have the incentive to look for
lower prices
 Competition

 The struggle among the producers for the
dollars of consumers

The Invisible Hand
 Describes the self-regulating nature of the
marketplace
Advantages of the Free Market
Economic Efficiency
2. Economic Freedom
3. Economic Growth
4. Consumer Sovereignty
1.
Critical Thinking and Review
How does specialization make us more
efficient?
 Why is economic equity difficult to
achieve in a free market economy?
 Explain what Adam Smith meant by “the
invisible hand of the marketplace.”

Centrally Planned Economy

Central Government answers key
economic questions
 Gov. owns both land and capital
Socialism and Communism

Socialism
 Social and political philosophy based on the
belief that democratic means should be
used to evenly distribute wealth throughout
society

Communism
 A political system characterized by a
centrally planned economy with all economic
and political power resting in the hands of
the central government
The Former USSR
Read pages 36 & 37 in your textbook
 With a partner discuss

 The role of the centrally planned
government in the Soviet Union
 The affects of the government on the
agriculture and industry
 The impact of Soviet Consumers
 What is a current day example of a country
that is centrally planned?
Problem s of Centrally Planned
Economies
Could be used to jumpstart Economy
 Poor quality
 Serious shortages
 Diminishing production


Read pg. 39 in textbook
 Real Case Study Russia in Crisis
 Answer Applying Economic Ideas Questions
Modern Economies
Mixed Economies
 Laissez Faire

 Doctrine that states government should not
intervene in the marketplace
Circular Flow Diagram of
Mixed Economy
Comparing Mixed Economies