Economics Notes Chapter 2 ECONOMIC SYSTEMS Economic Systems

Economics Notes Chapter 2

ECONOMIC SYSTEMS • Economic Systems – organized way a society provides for the wants and needs of it’s people

• Traditional Economy – economic system in which the allocation of scarce resources and other economic activity is the result of past practice or custom • Example; Amish, Native Americans • Command Economy or Socialism – economic system characterized by a central authority or government that makes most of the major economic decisions. • Example: former Soviet Union, China, Cuba • Market Economy or Capitalism – economic system in which supply, demand the price system help individuals make decisions • Example: United States, Hong Kong

• Mixed Economy – blend of command, market and traditional economies • All economies are mixed, (most have a greater mix of one economic system over the others) • Where would you place the following countries on the scale below: U. S. , China, Canada, Hong Kong • Command___________ Capitalism

CAPITALISM • Adam Smith – wrote “The Wealth of Nations” in 1776, and is considered to be the father of modern capitalism. • He believed that capitalism is based on natural laws and therefore you do not need the government to interfere.

• Voluntary Exchange – act of buyers and sellers freely and willingly engaging in market transactions • Profit – the amount of money left over after all costs have been paid • Profit Motive – incentive in capitalism to produce • Competition – the struggle among sellers to attract consumers • Example: Advertisement • How has advertisement changed in this digital age?

What Company sponsors American Idol?

What candy did ET help launch into popularity?

Reeses Pieces

• Consumer Sovereignty – role of consumer as ruler of the market when determining the types of goods and services produce • Invisible Hand – the concept that businesses benefit when they keep their customers happy “The customer is always right” • Private Property – individuals have the right to own and control their own property

• When can private rights be infringed upon in the United States? • When there is a warrant, which requires proof of a crime. • When someone’s life is in immediate danger. • Eminent Domain – The government has the right to take private property if it is for the good of the society – Example: private property has been taken to expand roads and highways, to build government buildings and more recently for privately owned businesses to expand economic growth to a community

Government’s Role in the United States Economy • Providing Public Goods and Services • Collecting taxes to pay for the public goods and service • Creating laws to protect citizens

Consumer Protection – government intervention in order to protect the consumer * The need for protection has greatly increased in the past 30 – 40 years as products have become more complex and we become more specialized • Examples of Consumer Protection • 1. FDA – Food and Drug Administration (food labels, safety seals, drug testing, inspection, safety standards, etc) • 2. Surgeon General Warnings • 3. Truth in Lending Act (1968) • 4. Lemon Law • 5. Environmental Protection Agency – EPA • 6. Better Business Bureau • 7. Laws protecting individuals – seat belts, air bags, inspection, helmet, drinking age 8. Others?

Advantages to Consumer Protection • 1. Safer Products • 2. More jobs

Disadvantages to Consumer Protection • 1. higher prices • 2. reduces competition • 3. slows down acceptance of new products • 4. other countries get a jump on the market • 5. less freedom in the market • 6. could require animal testing • 7. other?

• Allocation of Resources – distribution of resources (who gets the resources) • Command Economy – allocation is determined by the GOVERNMENT • Capitalism – allocation is determined by in INDIVIDUALS who have the money to pay for them