Chapter 2: Economic SystemsChapter 2: Economic Systems

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Chapter 2 – Bell RingerChapter 2 – Bell Ringer

• What goods should we produce?

• How should we produce them?

• Who should consume them?

• Group up, answer these three questions if it related to: FOOD

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Chapter 2 – Bell RingerChapter 2 – Bell Ringer

• Should the government try to influence the types of crops farmers grow?

• Should the government influence the kinds of animals farmers raise?

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Chapter 2 – Bell RingerChapter 2 – Bell Ringer

• Should producers be allowed to produce any kind of food they choose?

• Should fat content or the use of chemical additives be regulated?–Trans fat banned in US

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Chapter 2 – Bell RingerChapter 2 – Bell Ringer

• In our society, how are these three questions answered:

• Who gets to make the decisions regarding what to produce, how to produce it, and who consumes it?

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Three Economic QuestionsThree Economic Questions

• As a result of scarce resources, societies must answer three key economic questions:– What goods and services should be produced?– How should these goods and services be produced?– Who consumes these goods and services?

• How a society answers these three questions defines the type of economic system that society has.

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Economic System Economic System

Economic System The structure of methods/principles a society uses to produce and distribute goods/services.

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Question Breakdown: Questions 1 and 2Question Breakdown: Questions 1 and 2

• What goods and services should be produced?– Each society must decide what to produce in order to

satisfy the needs and wants of its people.– Because resources are limited, each decision that a

society makes about what to produce comes at an opportunity cost.

• How should goods and services be produced?– As a society decides how to produce its goods and

services, it must consider how best to use its land, labor, and capital.

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Combining Factor ResourcesCombining Factor Resources

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Question 3Question 3

• Who consumes goods and services?

– This question is largely determined by how societies distribute income.

– Through factor payments, including profits, societies can determine who will be the consumers of the goods and services produced.

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Factor PaymentsFactor Payments

Landowners collect rent, workers earn wages, entrepreneurs earn profits if they succeed.

Factor PaymentsThe income people receive in return for supplying factors of production.

Profit – the amount of money a business receives in excess of its expenses

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Economic SecurityEconomic Security

Most people don’t like uncertainty.

Safety netA set of government programs that protect people who face unfavorable economic conditions

-We want to know that there will be bread at the grocery store.-We want to know that our paycheck will come when it’s supposed to.-We want to be certain that the filling will always come out ‘the sides of Pizza Rolls-What happens in hard times when family/friends contributions aren’t enough?

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Traditional EconomiesTraditional Economies

• The oldest and simplest economic system is known as a traditional economy.

– Traditional economies rely on habit, custom, or ritual and revolve around the family. There is little room for innovation or change.

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Traditional Economy Traditional Economy

Traditional EconomyRelies on habit, custom, or ritual to decide to answer their three economic questions.

• Traditional economies are usually found in communities that tend to stay small and close.

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Traditional Economies, cont.Traditional Economies, cont.

• Societies with traditional economies are successful if they meet their own needs.

– In many cases, these communities lack modern conveniences and have a relatively low standard of living.

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ReviewReview

• Now that you have learned about the goals and values that affect how a society answers the key economic questions, go back and answer the Chapter Essential Question.– How does a society decide who gets what

goods and services?