Economics
Chapter 2 PowerPoint
Guided Notes
The Three Economic Questions

Every society must answer three questions:
o _____________________ goods and services should be produced?
o _____________________ should these goods and services be produced?
o _____________________ consumes these goods and services?
Economics Goals

Societies answer the three economic questions based on their values.
Economics Goals
Making the most of resources
Freedom from government intervention in the
production and distribution of goods and services
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
Fair distribution of wealth
Innovation leads to economic growth, and economic
growth leads to a higher standard of living
Societies pursue additional goals, such as
environmental protection
Four Economic Systems





An economic system is the method used by a society to produce and distribute goods and services.
__________________________________________ rely on habit, custom, or ritual to decide what to produce, how to
produce it, and to whom to distribute it.
In a __________________________________________, the central government makes all decisions about the production
and consumption of goods and services.
In a __________________________________________, economic decisions are made by individuals and are based on
exchange, or trade.
__________________________________________ are systems that combine tradition and the free market with limited
government intervention.
Why Do Markets Exist?



Markets exist because none of us produces all the goods and services we require to satisfy our wants and needs.
A _____________________ is an arrangement that allows buyers and sellers to exchange goods and services.
_____________________ is the concentration of the productive efforts of individuals and firms on a limited number of
activities.
The Free Market Economy

In a __________________________________________, households and business firms use markets to exchange money
and products. Households own the __________________________________________ and consume goods and services.
The Market’s Self-Regulating Nature



In every transaction, the buyer and seller consider only their _____________________, or their own personal gain. Selfinterest is the _____________________ force in the free market.
Producers in a free market struggle for the dollars of consumers. This is known as competition, and is the regulating force of
the free market.
The interaction of buyers and sellers, motivated by self-interest and regulated by competition, all happens without a central
plan. This phenomenon is called “_______________________________________________________________.”
Advantages of the Free Market




__________________________________________ - as a self-regulating system, a free market economy is efficient.
__________________________________________ - because competition encourages innovation, free markets encourage
growth.
__________________________________________ - free market economies have the highest degree of economic freedom
of any economic system.
__________________________________________ - free markets offer a wider variety of goods and services than any
other economic system.
Organization of Centrally Planned Economies



In a centrally planned economy, the government owns both __________________________________________. The
government decides what to produce, how much to produce, and how much to charge.
_____________________ is a social and political philosophy based on the belief that democratic means should be used to
distribute wealth evenly throughout a society.
_____________________is a political system characterized by a centrally planned economy with all economic and political
power resting in the hands of the government.
The Former Soviet Union



__________________________________________
o In the Soviet Union, the government created large state-owned
__________________________________________ for most of the country’s agricultural production.
__________________________________________
o Soviet planners favored heavy-industry production (such as __________________________________________),
over the production of consumer goods.
__________________________________________
o Consumer goods in the Soviet Union were _____________________ and usually of poor quality.
Problems of a Centrally-Planned Economy

Centrally planned economies face problems of __________________________________________,
_____________________, and diminishing _____________________
The Rise of Mixed Economies


Market economies, with all of their advantages, have certain drawbacks.
Limits of __________________________________________
o Laissez-faire is the doctrine that government generally should not interfere in the marketplace.
o
Governments create laws protecting __________________________________________ and
__________________________________________. They also encourage innovation through
__________________________________________.
Government’s Role in a Mixed Economy

In a mixed economy,
1. The government purchases _____________________, _____________________, and _____________________
from households in the _____________________market, and
2. Purchases _____________________ and _____________________ in the _____________________ market.
Comparing Mixed Economies

An economic system that permits the conduct of business with minimal government intervention is called
__________________________________________. The degree of government involvement in the economy varies among
nations.
Economics
Chapter 3 PowerPoint
Guided Notes
The Basic Principles of Free Enterprise

Several key characteristics make up the basic principles of free enterprise.
1. __________________________________________ - The drive for improvement of material well-being.
2. __________________________________________ - The ability for anyone to enter the marketplace.
3. __________________________________________ - Equal rights to all.
4. __________________________________________ - The right to control your possessions as you wish.
5. __________________________________________ - The right to decide what agreements in which you want to
take part.
6. __________________________________________ - The right to decide what and when you want to buy and sell a
product.
7.
__________________________________________- The rivalry among sellers to attract consumers.
The Consumer’s Role



A fundamental purpose of the free enterprise system is to give consumers the _____________________to make their own
economic choices.
Through their economic dealings with producers, consumers make their desires known. When
_____________________products, they indicate to producers _____________________to produce and
_____________________to make.
Consumers can also make their desires known by joining __________________________________________, which are
private organizations that try to persuade public officials to vote according to the interests of the groups’ members.
The Government’s Role



Americans expect the government to _____________________them from potential problems that arise from the
production of various products or the products themselves.
_______________________________________________________________- Laws that require companies to provide
consumers with important information about their products, such as __________________________________________ of
automobiles, _____________________of medication.
__________________________________________- Both state and federal governments’ involvement in concerns of the
public
as
a
whole,
such
as
__________________________________________,
_______________________________________________________________.
Tracking Business Cycles



__________________________________________is the study of the behavior and decision making of entire economies.
A __________________________________________is a period of a macroeconomic _____________________followed by
a period of _____________________.
One measure of a nation’s macroeconomy is _______________________________________________________________.
GDP is the _____________________value of __________________________________________goods and services
produced in a particular economy.
Promoting Economic Strength


Policymakers pursue three main outcomes as they seek to stabilize the economy.
_____________________
o One aim of federal economic policy is to __________________________________________for everyone who is
able to work.


_____________________
o For each generation of Americans to do better than previous ones, the economy must _____________________to
provide additional goods and services.
_____________________
o Stability gives _____________________, _____________________, and _____________________confidence in
the economy and in our __________________________________________, promoting economic freedom and
growth.
Encouraging Innovation



The government encourages the development of __________________________________________in several ways.
Technology is the process used to produce a good or service.
__________________________________________fund many research and development projects. Also, new technology
often evolves out of __________________________________________.
A _____________________gives the inventor of a new product the exclusive right to produce and sell it for
_____________________.
Public Goods

A _____________________is a shared good or service for which it would be impractical to make consumers pay individually
and to exclude nonpayers.
o Public goods are funded by the public sector, the part of the economy that involves transactions of the
government.
o A __________________________________________ is someone who would not choose to pay for a certain good
or service, but who would get the benefits of it anyway if it is provided as a public good.
Market Failures



Would the free market ensure that roads are built everywhere they are needed?
It’s doubtful. Neither could individuals afford to pay for a freeway.
A __________________________________________is a situation in which the market, on its own, does not distribute
resources efficiently.
Externalities

An _____________________is an economic side effect of a good or service that generates benefits or costs to someone
other than the person deciding how much to produce or consume.
o The building of a new dam and creation of a lake generates:
 _____________________Externalities
 A possible source of hydroelectric power
 Swimming
 Boating
 Fishing
 Lakefront views
 _____________________Externalities
 Loss of wildlife habitat due to flooding
 Disruption of fish migration along the river
 Overcrowding due to tourism
 Noise from racing boats and other watercraft
The Poverty Problem



The __________________________________________is an income level below that which is needed to support families or
households.
The poverty threshold is determined by the __________________________________________and is adjusted periodically.
_____________________is a general term that refers to government aid to the poor.
Redistribution Programs

__________________________________________are direct payments of money to eligible people.
o _______________________________________________________________ (TANF) - This program allows
individual states to decide how to best use federally provided funds.
o __________________________________________- Social Security provides direct cash transfers of retirement
income to the nation’s elderly and living expenses to the disabled.
o _____________________- Unemployment compensation provides money to eligible workers who have lost their
jobs.
o __________________________________________- Workers’ compensation provides a cash transfer of state
funds to employees injured while on the job.
Other Redistribution Programs

Besides cash transfers, other redistribution programs include:
o __________________________________________- goods and services provided by the government for free or at
greatly reduced prices.
o __________________________________________- Health insurance is provided by the government for the
elderly and disabled (_____________________) and for poor people who are unemployed or are not covered by
their employer’s insurance (_____________________).
o __________________________________________- Federal, state, and local governments all provide educational
opportunities for the poor.