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CHAPTER 2

Economic Systems
SECTION 1: Types of Economic Systems
SECTION 2: Features of the U.S. Economy
SECTION 3: The U.S. Economy at Work

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SECTION 1
Types of Economic Systems

Objectives:
 How are the three basic economic questions
answered in traditional, command, and
market economies?
 What are the roles of self-interest and
incentives in a market economy?
 What types of mixed economies exist today?

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SECTION 1
Types of Economic Systems
How the three basic economic questions
are answered in various economies:
 Traditional economy
 what to produce determined by tradition
 how to produce determined by custom
 for whom to produce determined by the number of
members in the society
 Command economy—answers to all questions
determined by government officials
 Market economy—answers to all questions
determined by individuals
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SECTION 1
Types of Economic Systems
Roles of self-interest and incentives in
a market economy:
 Self-interest drives people to fulfill their
needs and wants and helps the market grow.
 Incentives help people decide which
economic choices are in their self-interest.

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SECTION 1
Types of Economic Systems
Types of mixed economies currently
in existence:
 authoritarian socialism
 capitalism
 democratic socialism

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SECTION 2
Features of the U.S. Economy

Objectives:
 What are the basic principles of free
enterprise in the United States?
 What are the two markets of the circular-
flow model?
 How does the circular-flow model reflect
exchange?

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SECTION 2
Features of the U.S. Economy

Basic principles of free enterprise in


the United States:
 freedom to own private property and enter into
contracts
 freedom to make choices
 freedom to engage in economic competition
 freedom to make decisions based on self-interest
 freedom to participate in the economy with limited
government involvement and regulation
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SECTION 2
Features of the U.S. Economy

Two markets of the circular-flow


model:
 product market
 resource market

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SECTION 2
Features of the U.S. Economy

How the circular-flow model reflects


exchange:
 shows the flow of resources and products to
businesses and the government
 displays the flow of payments to individuals

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SECTION 3
The U.S. Economy at Work

Objectives:
 How do nations decide how to use scarce
resources?
 What are the major goals of U.S. economic
policy?
 Why do economic goals sometimes conflict?

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SECTION 3
The U.S. Economy at Work
How nations decide how to use scarce
resources:
 Households, businesses, and the government
work together to set goals.

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SECTION 3
The U.S. Economy at Work

Major goals of U.S. economic policy:


 freedom
 efficiency
 equity
 security
 stability
 growth
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SECTION 3
The U.S. Economy at Work
Why economic goals sometimes
conflict:
 differences in the goals of various
socioeconomic groups
 differences in how to achieve goals

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CHAPTER 2
Wrap-Up
1. How does the U.S. economic system compare to
traditional and command economic systems?
2. In which category of mixed economic systems does
the U.S. fit? Explain your answer.
3. Give an example of a traditional economic system.
What are the consequences to an individual
consumer who enters into a contract?
4. What are the economic principles of private
property and voluntary exchange?

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CHAPTER 2
Wrap-Up
5. What are the goals of U.S. economic policy?
6. Why are scarcity and choice basic economic
problems?

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