Econ Chapter 2 Notes

Three Economic Questions:

What goods and services should be produced? -Not just your basic needs and wants - Need to decide how much of the available resources should be devoted to other things
-Schools
-National Guard
2. How should those goods and services be produced? -All things require land, labor, and capital - These things can be combined in different ways - What is the most efficient way?
3. Who consumes these goods and services? -How are these goods and serves distributed?
Factor payments: these are the payments ($) people receive for providing the Factors of Production

6 Economic Goals

-All Societies must put these goals in order of importance
-How they put them in order is determined by the Economic system they have…
-No matter how a nation prioritizes its goals, once fact remains: achieving any economic goal comes only with some kind of economic trade-off!

Economic Efficiency
-making the most of the available resources -most societies try to maximize what they can get for the resources they have to work with
-If a society can accurately assess what to produce, it increases its economic efficiency 2.. Economic Freedom
- Freedom from government intervention in the production of goods and services
-What do you feel about laws that either keep you from earning an income or purchasing or possessing certain items?

3. Economic Security and Predictability
-Assurance that goods and serves will be available, payments will be made on time, and a safety new will protect individuals in times of economic disaster
Safety Net: or a set of government programs that protect people experiencing unfavorable economic conditions Welfare, food stamps, unemployment insurance, disability

4. Ecocomic Equity
-Fair distribution of wealth to all members of society -Should everyone get the same? -Should one’s consumption depend on how much one produces?

5. Economic Growth and Innovation
-Innovation leads to economic growth economic growth leaded to a higher standard of living
-Innovation in tech increases the efficiency in production and usher new goods and services

6. Additional Goals
-Some additional goals that some societies might pursue are: -Environmental protection -Full Employment -Universal Medical Care

Freedom, Growth and Innovation, Efficiency, Security and Predicability, and Equity

4 Economic Systems
-Each system has developed to address the three key economic questions
-Each system reflects a different prioritization of economic goals
-Each system also reflects the values of the society
-The following are the 4 different economic systems; Traditional, Market, Command, and mixed

Traditional
-Relies on habit, custom, or ritual to decide questions of production and consumption of goods and services Characteristics -Revolves around family -Work is divided along gender lines Little room for innovation or change -Communities that stay relatively small and close -Hunting and gathering usually lie at the heart of the people’s lives -Slow to adapt new technology or radical ideas -Lack modern conveniences and have a low stander of living

Market Economy
-An arrangement that allows buyers and sellers to exchange things -Markets exist because no one is self-sufficient -Markets allow us to exchange the things we have for the things we want
-Specialization-concentration of a the productive efforts on a limited number of activities -specialization makes us more efficient
Characteristics:
-Individuals and business firms use markets to exchange money and products
-Individuals and privately owned businesses own the Factors of Production (Land, Labor, Capital) -They make what they want, buy what they want
-Individuals answer the three economic questions

Circular Flow Diagram
-Shows how individuals and businesses exchange