Chapter 2
Section 1
Economic Systems
I. Describe the characteristics of
the traditional economy.


A. Economic System – An organized
way of providing for wants and
needs of a society.
B. WHAT, HOW, and FOR WHOM.
2
I. Describe the characteristics of
the traditional economy.

C. Traditional Economy- Economic
system in which basic economic
activity stems from ritual, habit,
or customs.
3
I. Describe the characteristics of
the traditional economy.

C. Traditional Economy
• 1) Strengths
• A) Everyone knows which role to play.
• B) Born into roles.
• C) Life is predictable and stable.
4
I. Describe the characteristics of
the traditional economy.

C. Traditional Economy
• 2) Weaknesses
• A) Discourages new ideas and new ways
of doing things.
• B) Lack of progress.
5
II. Explain the strengths and
weaknesses of the command economy.

A. Command Economy – Economic
system in which basic economic
decisions are made by a central
authority.
6
II. Explain the strengths and
weaknesses of the command economy.

B. Command Economy
• 1) Strengths
• A) Can change direction drastically in a
short time.
7
II. Explain the strengths and
weaknesses of the command economy.

B. Command Economy
2) Weaknesses
• A) Not designed to meet the needs and
wants of individuals.
• B) Lacks incentives for people to work
hard.
• C) Requires a large decision-making
bureaucracy.
• D) Lacks the flexibility to deal with
minor problems.
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III. Examine the strengths and
weaknesses of a market economy.

A. Market Economy – Economic
system in which basic economic
decisions are made by people and
firms acting in their own best
interest.
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III. Examine the strengths and
weaknesses of a market economy.

B. Market Economy
1) Strengths
• A) Can adjust to change over time.
• B) Has decentralized decision making.
• C) It gives producers and consumers a
great deal of freedom.
• D) Relatively small degree of
government interference.
• E) High degree of customer satisfaction.
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III. Examine the strengths and
weaknesses of a market economy.

B. Market Economy
2) Weakness
• A) FOR WHOM
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END OF SECTION 1
Section 2
Evaluating Economic
Performance
I. Describe the basic economic and
social goals used to evaluate economic
performance.

A. Economic freedom – An economic
goal that is based on the desire
of people to make their own
decisions.
14
I. Describe the basic economic and
social goals used to evaluate economic
performance.


B. Economic Efficiency – Factors of
production must be used wisely.
C. Economic Equity – Based on a
sense of fairness.
15
I. Describe the basic economic and
social goals used to evaluate economic
performance.

D. Economic Security

1) Social Security – Federal
program of disability and
retirement benefits.
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I. Describe the basic economic and
social goals used to evaluate economic
performance.

F. Price Stability –


1) Fixed Income - Income that
does not increase even though
prices go up.
2) Inflation – Rise in the general
level of prices.
17
I. Describe the basic economic and
social goals used to evaluate economic
performance.

G. Economic Growth –


1) Needed to meet everyone’s
future needs.
2) Satisfy the wants and needs
of a growing population.
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I. Describe the basic economic and
social goals used to evaluate economic
performance.

H. Origins of the seven major
economic goals –

A combination of the beliefs and
statements of American
consumers, business people, and
government officials.
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II. Examine the trade-offs among
economic and social goals.

A. The economic system of the
United States is flexible enough
to allow choices, compromise,
and to satisfy the majority.
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END OF SECTION 2
Section 3
Capitalism and
Free Enterprise
I. Explore the characteristics of a
free enterprise system.


A. Capitalism – Economic system in
which private
citizens own the
factors of production.
B. Competition – The struggle
among sellers to
attract consumers
while lowering
costs.
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I. Explore the characteristics of a
free enterprise system.

C. Free Enterprise Characteristics
• 1) Economic freedom –
 people have choices
• 2) Voluntary exchange –
 buyers and sellers freely and
willingly engage in market
transactions
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I. Explore the characteristics of a
free enterprise system.

C. Free Enterprise Characteristics
• 3) Private Property
 People have the right to control
their possessions as they wish
• 4) Profit Motive
 Driving force that encourages
people and organizations to
improve their material wellbeing.
25
I. Explore the characteristics of a
free enterprise system.
• D. Profit –

Extent of being better off at the
end of the day than you were at
the beginning.
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II. Describe the role and
importance of the entrepreneur.


A. Start new businesses.
B. Are willing to take risks.
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III. Examine the role of the
consumer as “sovereign”.

A. Consumer Sovereignty



Concept that the consumer is the
ruler of the market.
B. “The Customer is Always Right”
C. Consumers decide what to
purchase.
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IV. Describe the role that the
government plays in free enterprise.

A. Protector 
Laws for our health and safety.

B. Provider and consumer -

C. Regulator of business -

D. Promoter of national goals 29
IV. Describe the role that the
government plays in free enterprise.

E. Mixed Economy

Free economic activity is subject
to some government
intervention and regulation.
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