12/5 Warm-Ups

• Pass forward 26.2

1. In which market do firms purchase the factors of
production from households?
2. Which market supplies households with goods
and services?

Bonus Questions-
Charlotte is competing with several other major cities for a contract
with which industry? (hint, they’re in the transportation business)
 Most missed ?’s
 Why are all goods and services scarce?
 What is total revenue minus total cost?
 Who owns factors of production in a market
economy?
 Can you have a cost if you don’t produce
anything? Why?
 Why would money flow from firms to
households?
 Four Types of Economies
chart on p. 225

 Objective: to differentiate between the

various types of economies through
completion of comparison chart.
 TYPES OF ECONOMIES
Economic system is a an agreed
upon procedure within and among
communities to organize the
production and distribution of goods
and service.
Traditional Economy

Definition:
Economic system
that relies on habit
and custom
“That is the way we
have always done
it”
 Traditional Economy
How are the Growth Who / What
three influences
economic the
questions economy?
answered?
Not
By tradition concerned Tradition
with growth
(bartering is used)
 Traditional Economy
 Examples: very
isolated tribes

Amish
Who loses power in Political
this type of Philosophy and
economy? People
n/a n/a
Does not apply to
traditional economies
 Command Economy
(Centrally planned)
Definition:
Central government
makes all decision on
the production and
consumption of goods
and services.
“We do what we are
told”
 Command Economy
How are the Growth Who / What
three
influences
economic
questions the
answered? economy?
Whatever the Slow Government
govt. growth, has
decides is
inefficient complete
needed at
the least control
cost
 Command Economy
 Examples: Cuba, North Korea, Iran
1920-1991 Soviet Union
 Command Economy
Who loses Political
power in Philosophy
this type and People
of
economy?
Citizens Communism
Karl Marx
Socialism
 Karl Marx p. 226
 Marx was born in Germany in 1818
and died in London in 1883. He
was a philosopher and political
economist but was known best as
a revolutionary communist.
Marx along with Friedrich Engels
wrote the Communist
Manifesto.
Communist Manifesto
 History should be described as
social classes struggling with one
another
 19th Century social classes
 Proletariat – those that own very
little and therefore must sell labor to
the capitalists
 Bourgeois (capitalists) – the person
that owns the factories and buys
labor
 Communist Manifesto
(continued)
 The conflict between these two classes will
eventually lead to revolution by the
working class (proletariat). With this
revolution there would cease to be a struggle.
 “ Workers of all lands, unite” – the final
words of the Communist Manifesto
 This document lays out the foundations of
communism.
 Since the collapse of the Soviet Union, few
countries would describe themselves as
having a Marxist government. Political
parties throughout the world still maintain
Marxist ideologies.

 Despite Marx’s predictions, capitalism

is still thriving! We still see the existence
of a working class and entrepreneurs.
Contemporary Communims: Its
Status and Future
Korean Peninsula From Space
 Communism for Kiddies?

 Smurfs
 Market Economy
Definition: Economic
system in which all
economic decisions
are made by the
citizens

“Make as much as we
want”
 Market Economy
How are the Growth Who / What
three econ. influences
questions the
answered? economy?
What? – most Successful Citizens
profitable and Supply and
How? – least efficient demand
cost method Competition
For Whom? – Invisible
Highest
Hand
bidder
 Market Economy
 Examples:
United States,
Singapore, Hong
Kong
 Market Economy

Who loses Political

power in Philosop
this type hy and
of People
economy?
Government Capitalism
Adam
Smith
 Mixed Economy
All economies of the
 Definition: world are mixed….. There
Market based are no true command or
economies in completely free market
economies…
which govt. plays
a limited role
 Mixed Economy
How are the Growth Who /
three What
economic influence
questions
answered?
s the
economy?
Govt. and varies Part citizen /
Citizens part govt.
 Mixed Economy

Examples:
(technically every country is, to a
degree, mixed) including: *United
States
*France
*United Kingdom
*Canada
 Mixed Economy
Who loses Political
power in Philosoph
this type y and
of People
economy
?
varies John
Maynard
Keynes
 Mixed Economies: 229

Objective: to identify the

characteristics of a mixed
economy through class notes and
discussion
 Mixed Economies
Review…..
What are the 3 Economic questions?

• What goods and services should be produced?

• How should these goods and services be

produced?
• For whom should these goods and
services be produced?
 Mixed Economy

COMMAND______________________________MARKET
Communism Capitalism
Socialism Free Market
Centrally Planned/Controlled Free Enterprise
Authoritarian Profit
Enterprise
Limited social gain Individual preference of
jobs
Government directed Progress is stressed
Factors of production gov’t owned High self-gain
No self-interest or competition Competition
Material rewards
GOV’T CONTROL FREEDOM

North Korea China France US

Singapore
Cuba
 Mixed Economy
- Most contemporary economies are a
blend of market with some
government interference

Remember…..What does laissez-

faire mean????
 Mixed Economy
- There IS a need for certain government
interference because some needs and wants of
society are difficult to address in the market
place (Could the market place provide for
national defense or a highway system??)
 Mixed Economy
- Some needs that markets could meet fall to the
government so that ALL members of society can
participate (i.e. education)
- Governments create laws to protect property
rights and enforce contracts (Why would
someone develop a new product if they couldn’t
patent the product?)
 Mixed Economies

- Societies must look at whether their goals

could be better addressed by an open
market or government action and look at
the opportunity cost for each action (Are
you willing to pay taxes to fund an army??
Give all people an education??)
 Mixed Economies
Circular Flow Diagram

 Remember the circular flow diagram we

looked at in Goal 7???
 What were the two different markets in
this flow?
 Who were the two major players in this
flow?
Market Economy Circular Flow
Circular Flow Diagram of a Market Economy

Households
pay firms for Product Market
goods and
services. monetary flow

physical flow

Firms supply
households
with goods and
services.

Households Firms
Households
supply firms with
land, labor, and
capital

Firms pay
households
for land,
physical flow
labor, and
monetary flow capital.

Factor Market
 Mixed Economies
Circular Flow Diagram

Adding the government….

-Governments purchase land, labor, and capital from
households in the factor market
-Governments purchase goods and services in the
product market (buildings, office supplies, phones,
computers, etc.)
-Governments provide goods and services by
combining resources through the product market
(i.e. roads)
-Governments collect taxes from both households
and businesses
 Mixed Economies
Circular Flow Diagram
Circular Flow Diagram of a Mixed Economy

monetary flow

physical flow
t
ta en s
xe m e
s ernhas
v c
gopur

Households expenditures Government expenditures Firms

t-
en ta
m
ernd xe
s
v e s
go wn tor
o ac
f physical flow

monetary flow
 Mixed Economies
Comparing Mixed Economies
Free enterprise: economic system characterized
by private or corporate ownership of capital
goods; investments are determined by private
decision rather than state control
Transition: a period of change in
which an economy moves away
from central planning toward
a market-based system
China
 Mixed Economies
Privatized: to make a transition, state firms
must sell their businesses to individuals and
then allow them to compete with one another
in the marketplace

THE US HAS A FREE ENTERPRISE SYSTEM!!

-Government interferes to provide services, keep
order, and promote the general welfare
-US law protects private property
Test Corrections and Homework

Write the question and the complete answer

(not just the letter) or rewrite the question
and answer in a complete sentence.

 P. 231 reading guide 21.1 and 21.2

 Origami Foldable
 Use the distributed handout as your guide
 You will need 4 colored pieces of paper
 You will need 3 white pieces of paper
TOP
Fold like this –
3 times per Left
Rt top
square…… top

Left Rt
bottom bottom
Bottom