PRODUCTION DISTRIBUTION and CONSUMPTION What Is an Economy

PRODUCTION, DISTRIBUTION, and CONSUMPTION What Is an Economy? Chapter 4 n Global Economies 1

What Is an Economy? What You'll Learn = What is meant by the term economy = The factors of production = The three basic economic questions = The difference between a market economy, command economy, and a mixed economy Chapter 4 n Global Economies 2

What Is an Economy? An economy, or economic system, is the way a nation makes economic choices about how the nation will use its resources to produce and distribute goods and services. Chapter 4 n Global Economies 3

What Is an Economy? Resources, also called factors of production, are all the things used in producing goods and services. They fall into four categories: = land = labor = capital = entrepreneurship Slide 1 of 3 Chapter 4 n Global Economies 4

Graphic Organizer The Factors of Production Land Labor Capital Entrepreneurship Product Chapter 4 n Global Economies 5

What Is an Economy? Resources = LAND refers to everything on Easrth that is in its natural state, or Earth’s natural resources. = LABOR refers to all the people who work in the economy. Slide 3 of 3 Chapter 4 n Global Economies 6

What Is an Economy? Resources = CAPITAL includes money needed to start and operate a business. = ENTREPRENEURSHIP refers to the skills of people who are willing to risk their time and money to run a business. Slide 3 of 3 Chapter 4 n Global Economies 7

What Is an Economy? Goods and Services = Goods are things that you can use or consume, like food or CDs or books or a car or clothes. You buy a good with the idea that you will use it, either once or over and over again. Goods you can physically touch. Slide 2 of 3 Chapter 4 n Global Economies 8

What Is an Economy? Goods and Services = A services is something that someone does for you, like a hair cut or fix you dinner even teach you social studies. You really do not get anything solid, like a book or a CD, but you do get something you need. Slide 2 of 3 Chapter 4 n Global Economies 9

What Is an Economy? How Does an Economy Work? The way countries answer three basic questions tells you the name of their economic system and how it works. 1. What goods and services should be produced? 2. How should the goods and services be produced? 3. For whom should the goods and services be produced? Chapter 4 n Global Economies 10

What Is an Economy? Market (Traditional) Economies In a pure market economy there is no government involvement in economic decisions. The government lets the market answer the following three basic economic questions: Slide 1 of 2 Chapter 4 n Global Economies 11

What Is an Economy? Market Economies 1. What goods and services should be produced? Consumers decide what should be produced in a market economy through the purchases they make. Slide 1 of 2 Chapter 4 n Global Economies 12

What Is an Economy? Market Economies 2. How should the goods and services be produced? Production is left entirely up to businesses. Businesses must be competitive in such an economy and produce quality products at lower prices than their competitors. Slide 2 of 2 Chapter 4 n Global Economies 13

What Is an Economy? Market Economies 3. For whom should the goods and services be produced? In a market economy, the people who have more money are able to buy more goods and services. Slide 2 of 2 Chapter 4 n Global Economies 14

What Is an Economy? Command Economies In a command economy the government answers the three basic economic questions. Slide 1 of 2 Chapter 4 n Global Economies 15

What Is an Economy? Command Economies 1. What goods and services should be produced? A dictator or a central planning committee decides what products are needed. Slide 1 of 2 Chapter 4 n Global Economies 16

What Is an Economy? Command Economies 2. How should the goods and services be produced? Since the government owns all means of production (land, labor, capital, entrepreneurship) in a command economy, it decides how goods and services will be produced. Slide 1 of 2 Chapter 4 n Global Economies 17

What Is an Economy? Command Economies 3. For whom should the goods and services be produced? The government decides who will get what is produced in a command economy. Slide 2 of 2 Chapter 4 n Global Economies 18

What Is an Economy? Mixed Economies All economies in the world today are mixed. There is some government involvement in the economy. = Example: The United States government is involved in the economy through laws and regulations governing businesses, and provides socialistic programs, such as welfare, Medicaid, and Medicare. Chapter 4 n Global Economies 19

What Is an Economy? Continuum of Economic Systems When studying different economic systems, it is best to view them on a continuum, as shown here, because there is not any one true economic system. Chapter 4 n Global Economies 20

ASSESSMENT Reviewing Key Terms and Concepts 1. What is an economy? 2. Name the factors of production necessary to create goods and services in an economy. 3. Explain how command market economies answer the three basic economic questions. Slide 1 of 2 Chapter 4 n Global Economies 21

ASSESSMENT Reviewing Key Terms and Concepts 4. Why are all economies mixed? 5. How do Market and Command economies differ from each other? Slide 2 of 2 Chapter 4 n Global Economies 22