Topic 2 Review Questions Free Enterprise and Other Economic Systems

Topic two: Costless Enterprise and Other Economic Systems

Topic Objectives Students will be able to • • • Identify the three bones economic questions that all societies must answer Describe the economic goals that determine how a gild answers the three economic questions. Ascertain the characteristics of a traditional lodge. Explain why markets exist. Explain a circular flow model of a free market economic system. Describe how self-interest and competition lead to the self-regulating nature of the marketplace. Identify the advantages of a gratuitous market economy. Depict how a centrally planned economy is organized, including its disadvantages. Distinguish b/w socialism and communism. Explain the rising of mixed economic systems. Explain the basic characteristics of the U.s. gratis enterprise arrangement. Describe the office of government in the U.s. free enterprise system.

I. The 3 Basic Economical Questions • Because resources are deficient, every gild must answer three economic questions: • What goods/services should be produced? • How should these goods/services be produced? • Who consumes these goods/services? • The fashion a gild answers these questions defines its economic system.

Three Questions… 1. What Goods/ Services to Be Produced? * Every society must make up one's mind what to produce to satisfy needs/wants * Ex: nutrient, shelter, consumer goods. * Each decision comes w/ opportunity costs ii. How Should Goods and Services Be Produced? * Ex: What fuel use? Oil, solar, nuclear? * Figure 2. 1 * All decisions involve trade-offs

Three Questions… iii. Who Consumes the Goods and Services that are produced? * Answers to questions are largely determined by how societies distribute income. * Factor Payments * Profit

I. Three Questions… Economic Goals of Order 1. Efficiency 2. Liberty iii. Security… safety net 4. Equity… Figure ii. 2 v. Growth… Standard of Living, Innovation vi. Alien Economical Goals ***Traditional Economies Which basic economic goals can be achieved easily in a traditional economy? Which cannot?

Ii. Free Markets Why Do Markets Exist? 1. Define: Markets * Markets eliminate the demand for self-sufficient 2. Role of Specialization * Leads to efficiency in the use of majuscule, land, and labor; benefits businesses and specialists 3. Buying and Selling * Demand a mechanism that allows buying/selling that was produced and buy what they want.

II. Free Markets Elements of a free Market place Economic system • Answers to the iii ? s are made by voluntary substitution in markets. • Individuals and businesses make their own decisions about what to buy or sell. • Mkt Eco: sometimes chosen capitalist economies b/c the capital that entrepreneurs invest is a vital part of organization. • Part of Households/ Firms: Own f of p & Consume g/s • Part of Cistron & Product Markets – FM: firms buy f of p from households – PM: Household buy g/s that firms produce

II. Free Markets How Markets Self-Regulate • Self Involvement & Adam Smith/ The Wealth of Nations • Incentives (Motivate) & Competition (Regulates) Figure ii. 5 • The Invisible Hand: No central planning or management – Supply/Demand; Individual Incentives What does competition among producers in a free market reach for consumers?

2. Free Markets Advantages of a Gratuitous Market one. Economical Efficiency: Respond to Mkt Conditions 2. Economical Liberty: Choice: Consumers & Producers 3. Economic Growth: S of Living & Innovation Note: Figure 2. 6 Consumer Sovereignty

III. Centrally Planned Economies Features of Key Planning • As well: Command Economy • Def: Govt answers iii ? s; owns country, capital, even labor • Contrast to a gratis marketplace arrangement • No costless mkt forces of self-interest, incentives, and contest. • No: private property, free mkt pricing, competition, consumer sovereignty • Examples: Communism & Socialism • How is the gun 5. butter debate resolved?

Three. Centrally Planned Economies Socialism • Range of eco systems/ practices • Allows ownership of some private property • Tin exist part of democratic organisation Communism • Requires revolutionary change: Eco Disinterestedness requires central authority • Govt is disciplinarian, not autonomous • State ownership of f of prod

Iii. Centrally Planned Eco: Socialism 5. Communism • Both: even distribution of wealth and centralized control of economic power. • Socialist Countries May exist Autonomous, but communism ever authoritarian… limit individual liberty and require strict obedience • Note: Karl Marx – Worker Exploitation, Unfair Wealth Distribution What belief did Karl Marx hold about capitalism? Figure 2. 8: Product Goals: Soviet v Year Programme

III. Centrally Planned Economies Disadvantages of Central Planning 1. ii. 3. 4. v. Economic Inefficiency: No incentive, huge hierarchy Lack of Economic Liberty: Society over Individual Lack of Economic Growth: Innovation Discouraged Economic Inequity: Eq of Results rarely accomplished Positives: Jobs, Women, Healthcare, New industries Why do centrally planned economies tend not to be efficient? Who benefits and who suffers most from a centrally planned economy? How?

Four. Mixed Economies I. The Reasons for a Mixed Economy A. Why Govt Gets Involved i. Public Needs: Infrastructure, Education 2. Equity: Ex: Child Labor, Equal Pay 3. Protect Holding Rights: Concrete, Intellectual 4. Ensure Fair Exchanges (contracts) 5. Redistribution of Wealth: 16 th A, Mini Wage, SS B. Balancing Govt and Eco Liberty *History…. Function of Policymaking

IV. Mixed Economies II. Circular Flow Model of a Mixed Economy: shows how govt interacts w/ households and businesses

IV. Mixed Economies… Circular Flow i. ii. 3. Govt Actions in FM: purchase country, labor, capital Govt Actions in PM: buy goods, services Govt Transferring Money: SS, Medicare, Unem, Food Stamps, Vet Benefits

IV. Mixed Economies C. Mixed Economies Today i. Mixed Eco westward/ Heavy Govt Involvement 2. Mixed Eco Tending Toward Free Markets 3. Part of Govt *Keep lodge, Provide services, Promote welfare, Protect individual belongings, Some regulations/limitations 4. Overall Economic Liberty: Choices for Consumers/Producers 5. Transition Towards Privatization Tin can be Hard Annotation: Continuum on Mixed Economies: Figure two. 12

V. Benefits of Complimentary Enterprise A. Bones Characteristics of Costless Enterprise 1. Opportunity: Individual 2. Incentives: Self interest: wages, profits, prices 3. Profit Motive: encourages chance, innovation 4. Competition; Open Opportunity: anyone tin can compete; regulates the market 5. Legal Equality 6. Private Belongings Rights: Control, Preserve, Protect 7. Economic Freedom: Free Contract, Voluntary Exchange

V. Benefits of Complimentary Enterprise B. Key Roles in the Free Enterprise Arrangement 1. Function of the Consumer * Sends Signal… Interest Group Involvement two. Office of the Entrepreneur * Decides on Resources, Makes Profit C. Economic Freedom and the Constitution ane. Property Rights: Eminent Domain; 5 thursday A 2. Taxation: 16 th A 3. Contracts

V. Benefits D. Limited Role of Govt in the Market ** Constitutional responsibility to protect belongings rights evolved into actions to promote the public involvement. 1. Information & Free Enterprise *Public Disclosure Laws; Truth-in-Lending Laws 2. Protecting Public Wellness, Safe, and Well-being *EPA, OSHA 3. Negative Effects of Regulation * Rules can be costly to implement: boring eco growth & cut into profit * Stifle contest and enhance prices (ex: tariffs) * Increase govt spending, bureaucracy: enforce

Major Regulatory Agencies • • • Food and Drug Administration Federal Reserve Organisation Federal Deposit Insurance Corporation Federal Aviation Administration Ecology Protection Administration Occupational Prophylactic & Health Administration Consumer Protection Safety Commission Nuclear Regulatory Commission Transportation Security Administration Consumer Financial Protection Bureau – Page 49

Important Terms Macroeconomics: study of economic beliefs and decisionmaking in a nation'due south whole economic system. Microeconomics: study of economical behavior and decision making in small units (households, firms) Gross Domestic Product: total value of all final goods and services produced annually in a land. Business concern Wheel: the alternating pattern of periodic expansion and contraction (Figure 2. 6) Public Skillful: shared good or service (infrastructure); financed by the public sector.

Enduring Objectives • Considering societies answer the key economical questions differently, multiple economic systems have developed. • Competition helps to regulate markets and gives producers incentives to brand what consumers want. • Because pure market and pure centrally planned economies accept drawbacks, nations tend to have mixed economies. • Under the American gratis enterprise system, the regime preserves economic freedoms while protecting the public interest through limited regulation of the economy.

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