Period _____ Period _____

Date Date _________ Turned in _________ Name ____________________________________

Directions: As you read over this page, highlight concepts/ideas that are connected to the first chapter. Unit 1 Fundamental Economic Concepts Unit Overview: Unit 1 provides a basic introduction to and an overview of economics. 1. Chapter 1 focuses on the fundamental economic problem of scarcity and introduces terms necessary to the study and understanding of economics. 2. Chapter 2 continues the discussion of decision making and focuses on the different economic systems. 3. Chapter 3 covers the various kinds of business and nonprofit institutions that operate in our economy. Unit Learning Targets: After studying this unit: o I can define economics and its fundamental principles. o I can differentiate between traditional, command, market and mixed economies. o I can identify the major types of business and nonprofit organizations in the United States. Chapter 2 Economic Systems and Decision Making 2.1 Essential Question: How does an economic system help a society deal with the fundamental problem of scarcity? Chapter 2.1 Learning Targets: o I can compare the benefits and weaknesses of the traditional, command, market and mixed economic systems. o I can recognize the relationship between a free market, capitalism, and free enterprise in a mixed economic system I can explain the spectrum of mixed economies, in particular communism, socialism, and capitalism, how they relate to political/economic systems and how resources are owned and allocated. 2.2 Essential Question: How might major economic and social goals in the United States change in your lifetime? Chapter 2.2 Learning Targets: o I can describe the basic economic and social goals used to evaluate economic performance. o I can critique economic and social goals and analyze them for trade-offs and opportunity costs using the Scope of Economics model. 2.3 Essential Questions: Are the roles of the entrepreneur, the consumer, and the government in the free enterprise system equally important, or is one more important than the other? Chapter 2.3 Learning Targets: o I can continue to examine the free enterprise economic system by identifying the systems five major elements or characteristics. o I can explain not only the role of the entrepreneur, but also the importance of those roles in a free enterprise economic system. o I can recognize the effect the consumer has as a sovereign entity in the free enterprise economic system. o I can explain the four roles the US government plays in the US free enterprise system and how it affects my life. o I can demonstrate the role of the entrepreneur, consumer, and US government using the circle flow model of economic.

Essential Question: How does an economic system help a society deal with the fundamental problem of scarcity?

Directions: Before reading the text, brainstorm/connect ideas with your flashcards for this section, and keep the flashcards out so you can refer to them and they can help you. While reading the text, circle flashcard vocab and N2 plus underline C3 and R2. Use the side of the page that is colored to write the definitions of unknown words in your own words, fill in the given reading strategies, paraphrase the main idea for each paragraph and write additional notes or questions.

2.1: Economic Systems The fundamental economic problem facing ALL societies is scarcity. Scarcity is the condition that results from society not having enough resources to produce all the things people or societies would like to have. Scarcity affects almost every decision we make, and this is where economics comes in. Economics is the study of how people and societies try to satisfy seemingly unlimited and competing wants through the careful use of relatively scarce resources. So now we start looking at how society organizes itself into answering the three basic economic questions: What to produce; How to produce; and For Whom to produce - or in other words, how a society organizes itself for the wants and needs of their people. (Please tell me that this has been pounded into your brain at this point but if this is new go back to 1.1 (do not pass Go and do not collect your $200.00) and review). All society uses an economic system- an organized way of providing for the wants and needs of their people. The way societies organize themselves determine the type of economic system they have. Good news: there are only three major economic systems (traditional, command, and market economies). Bad news: almost all economies combine elements of all three. Traditional Economies Why does a bride toss the bouquet at a wedding? No really why do they? It seems rather silly to whip flowers (sometimes with sharp thorns on them) at single women because we all know that the woman that beats everyone to the bouquet isnt guaranteed to get married next. Why do we always have Turkey on the third Thursday each November? Talk about planning a menu in advance and Im really not a fan of the turkey. Why do we wear that funny square hat at graduation talk about a fashion disaster! Why Why Why do we do all these strange things? I have no idea, but it has always been done this way and it will always be done that way, and that my friends, is a tradition. Same reasoning applies in traditional economic system. The answers to the three basic questions never changes. What do we
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produce? Same stuff as we have been producing over the past 500 plus years. How do we produce it? The same way and with the same people/families as we have for the past 500 plus years. For Whom do we produce? For the same people as we have for the past 500 plus years. In a society with traditional economy, the use of scarce resources- and nearly all other economic activity- stems from ritual, habit, or custom. Habit and custom also dictate most social behavior. Individuals are generally not free to make decisions based on what they want or would like to have. Instead, their roles are defined by the customs of their elders and ancestors. For me, traditional economies can be summed up in one word- Amish. Yup Ezekiel is a wood worker, Ezekiels father is a wood worker and handed all of his knowledge down to his son; Ezekiels grandfather was a wood worker and handed all of his knowledge down to his son; Ezekiels great grandfather was a wood worker and handed all of his knowledge down to his son; Ezekiels great great grandfather was a wood worker and handed all of his knowledge down to his son. Tradition dictates how people live their lives. On the plus side, there is little uncertainty over what to produce. If you are born into a family of hunters, you hunt. If you are born into a family of farmers, you farm. (Think about this as an alternative to ACT scores, because it doesnt matter what you score, you are doing the same thing as your parent) Likewise, there is little uncertainty over how to produce, because you do things much the same way as your parents did. Finally, the for whom question is determined by customs and traditions of the society. In some societies, you would provide for your immediate family. In other societies, like the Inuit of northern Canada, you share what you have hunted with all families of the village. For generations, the Inuit parents taught their children how to survive in a harsh climate, make tools, fish, and hunt. Their children, in turn, taught these skills to the next generation. When the Inuit hunted, it was traditional to share the spoils of the hunt with other families. If a walrus or bear was taken, hunters divided the kill evenly into as many portions as there were heads of families in the hunting party. The hunter most responsible for the kill had first choice, the second hunter to help with the kill chose next, and so on. Because the Inuit shared freely and generously with one another, members of the hunting party later shared their portions
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(Traditional Economy) Summarize the main ideas from this section?

with other families who had not participated. The result was that the hunter had the honor of the kill and the respect of the village, rather than a physical claim to the entire animal. Because of this tradition of sharing, a village could survive the long, harsh winters as long as skilled hunters lived in the community. This custom was partially responsible for the Inuits survival for thousands of years. There are two drawbacks to the traditional economy. The first being this economic system tends to discourage new ideas and new ways of doing things. Kind of like you trying to convince your parents or grandparents (or Amish) that Facebook is a good way to talk to people. Not going to happen. There are strict roles in a traditional society and those roles have the effect of punishing people that act differently or break societys rules, example shunning or casting out a member. The second drawback is the lack of progress leads to economic stagnation (lack of movement like stagnant water) and lower standard of living than in the other economic systems. An element of the traditional economic system- barterremains a major part of the global economy of the twenty-first century. Barter involves the exchange of goods and services, and according to the World Trade Organization (WTO) which is an international agency that administers trade agreements, settles trade disputes between governments, organizes trade negotiations, and provides technical assistance and training for developing countries, $8.4 billion of all international trade in 2004 was conducted on a non-cash basis. That figure represents 15% of the total value of international transactions made that year. Command Economies In Maurice Sendaks classic childrens book , Where the Wild Things Are, he writes: And when he came to the place where the wild things are, they roared their terrible roars and gnashed their terrible teeth and rolled their terrible eyes and showed their terrible claws till Max said, "Be still" and tamed them with the magic trick of staring into all their yellow eyes without blinking once. And they were frightened and called him the

most wild thing of all and made him king of all wild things. (1963) A synonym for said used in the above passage is a. asked b. commanded c. countermanded d. gossiped e. requested Go ahead, circle your answer on the page Ill wait. (the sound of Jeopardy is playing) (No seriously. DO IT). First thing. What is a synonym? Thank Mr. Rinehart for your ability to answer this question? Its a word that has the same or similar meaning, like happy, joyous, elated or (for you science people) in Biology it means one of two or more scientific names applied to a single taxonomic category, as a species or genus. OK So now we know we are looking for a word that can replace said and not change the meaning of the sentence. What is Max doing? Is he asking the Wild Thing to Be Still- No reasoning there is no question mark after still and the Wild Things do not answer his question verbally. Is he commanding them to Be Still? When you say that quote in your head, does the volume change when you say Be Still? Does it get louder or more pronounced? Like when your parent or I tell you to do something and you know inherently not to argue with them. That means to command- to direct with specific authority or prerogative; order (dictionary.com). Clean Your Room is often commanded at our house. In Economics, it means the same thing, but instead of Max, your parents, or myself, who is the top dog in a society?... Think and answer. Ill wait! (Jeopardy in the background please). Yup the government, big brother, or Uncle Sam (wow more synonyms). In a pure Command Economy, it is the government (A.K.A. central authority) that decides: What to produce, How to produce, and For Whom to produce. This means that the government decides if houses or apartments will be built. It also decides on the best way to build them, as well as who will receive them. It can be headed by a King (Saudi Arabia), a dictator (North Korea, Cuba, Vietnam), a president/prime minister (China) or anyone else who makes the major economic decisions.

Most command economies severely limit private property rights. People are not allowed to own their homes, businesses, and other productive resources, although they may have some personal items and tools. Individual freedoms are also limited. For example, if the government wants engineers rather than social workers, then its universities will train more engineers. This limits There is a cool article on my web page that looks at the economic principles of The Hunger individual choices because people have to live within the Games. Check it out in Chapter 2, Extra governments restrictions. North Korea ranks lowest in the world Resources. according 2013 Index of Economic Freedom (http://www.heritage.org/index/ranking) though Afghanistan, Iraq, Kosovo Libya, Liechtenstein, Somalia, Sudan, and Syria couldnt be included in the index because of the lack of economic information. Finally, government officials tend to favor themselves when making economic decisions. The result is that some of the countrys money often goes to luxury goods like houses, cars, and extravagant vacations for these officials. Or as Midnight Oil sings about in Read All About It says, The rich get richer and the poor get the picture. http://youtu.be/5jV3sC0fFAU Because command economies tend to be unproductive, few pure command economies exist today. North Korea and Cuba are modern examples, but in the 1970s and 1980s, the communist bloc states (Poland, East Germany, Hungary, Czechoslovakia, Bulgaria, Romania, and Yugoslavia) and the former Soviet Union had command economies. In the former Soviet Union, for example, the State Planning Commission determined needs, set goals, and established production quotas for the major industries. If it wanted growth in heavy manufacturing, it would allocate resources to that sector. If it wanted to strengthen national defense, it directed resources to military production. For example, according to the CIA World Factbook (https://www.cia.gov/library/publications/the-worldfactbook/index.html), North Korea spends about 33.9% of its GNP on its military. In comparison, the United States spends 3.2% of its GNP on the military. North Korea ranks number 1 and the United States ranks as number 46 when comparing nations military expenditures to a nations GNP. Also according to the CIA World Factbook, military spending worldwide amounts to a staggering 741 billion dollars annually. This figure represents approximately 1.5% of the world's GDP of $49,000 billion ($49 trillion). The United States has a $277 billion defense budget which accounts for 37% of the world's total.
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The main strength of a command system is that it can change direction drastically. The former Soviet Union went from a rural agricultural society to an industrial nation in a few decades by emphasizing the growth of heavy industry. During this period, the central planning agency shifted resources on a massive scale. According to Senior Fellow of the Royal United Service Institute, North Korea truly began its nuclear program in the early 1990s and by 2006, it exploded its first nuclear bomb underground and in 2009 it repeated an underwater explosion (to see the actual explosion, go to http://youtu.be/bSoZdgVyvck). In 2012, they launched a satellite into space, which now places them as a full member of the nuclear bomb state club. China created an amazing train transportation system in 3 years and continues to reinvent transportation. See the web site for video and articles on their train system, plus what the government is doing to fight pollution and going green. Another advantage of command economies, especially those represented by the form Soviet Union, is the many health and public services are available to everyone at little or no cost. Pure command economies have disadvantages as well. One is that they ignore the basic wants and needs of consumers. In the former Soviet Union and the communist bloc (confused about which states these are? Look at the Because command economies tend paragraph), generations were forced to do without consumer goods and adequate housing. When I was younger (Im still young!) and living in Vienna, Austria, I travelled to Sofia, Bulgaria and met a friend of the person that I rented my apartment from. I brought her a big box that contained these items because they were not available: tampons and pads (they used socks when Aunt Flow came for a visit), condoms (remember Ceausescu from chapter 1- in most of these states, birth control was not available or illegal), soap, shampoo, cigarettes, coffee, tea, sugar, flour, butter, tooth brush and paste, paper, pens and chocolate. Her apartment had a pipe coming out of her wall and the only water she had was cold. Since there is no such thing as a free lunch and the North Korean government is putting a strong emphasis on its military, the people of North Korea are the ones paying the opportunity cost through years of suffering from hunger. Starvation is so prevalent that at times the government had to accept aid from international sources.

A second disadvantage is that the system gives people the incentive to fill their quotas instead of producing a good product. Or in other words, goods are of poor quality since there is a lack of profit motive. At one time in the Soviet Union, quotas for electrical motors were measured in tons of output. Soviet workers then filled their quotas by producing the worlds heaviest electrical motors. Remember my visit to Sofia, the quota was done on the number of showers that people had, not if they worked. She considered herself lucky because in many of the apartments, the pipe was not hooked up to the water main. A third disadvantage is that a command economy requires a large decision-making bureaucracy. If youve ever dealt with the anything from the government (example Social Security), then you have an understanding of a bureaucracy, but this is nothing compared to the decision-making bureaucracy in a command economy. They had the largest government department in the Soviet Union that was made up of a plethora of clerks, planners, and other administrators that were needed to operate the system because nothing could be done without the central planning commissions decree. When I say that nothing could be done without the Central Planning Commission telling people what to do, I mean that. Lets say you have a lumberyard in Magadan. Youre doing your lumbering and your blade breaks at 9:14 am. You need to contact the Central Planning Commission to see what they want you to do. (No you cannot just change the blade by yourself, it is the state that tells you what and how to produce, so they are the ones to tell you what to do). Unfortunately, the Central Planning Commission is located in Moscow, which is 8 time zones away. So your 9:14 am time in Magadan is 1:14 am in Moscow and the department is closed and will not open until 9 A.M., which is 5 P.M. Magadan time. All of those workers that were working on that line get to set around eat and drink their lunches and do nothing for the day. Then at 5 P.M. the head calls Moscow to see what they want him to do and they respond that they will get back to them after the committee has meet, but there is a whole bunch of paperwork that needs to be filled out in triplicate and sent to the Commission for review. By 3 P.M. the next day, the commission has met and a plan has been developed and approved. They try to get ahold of someone in Magadan, but it is 11 P.M. there and the
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(Command Economies) Summarize the main ideas from this section?

lumberjacks have been sitting around all day do nothing except eating and drinking their lunch. (OK you see the problem) The forth weakness is that the planning bureaucracy lacks the flexibility to deal with minor day-to-day problem. As a result, command economies tend to lurch from one crisis to the next- or collapse completely, as did the Soviet Union. Next, rewards and/or profit motive for individual initiatives are rare in a command economy. Each person is expected to perform a job in a factory or on a farm according to the decisions made by the Central Planning Commission. Individual initiatives are illegal and are punished as being part of the central governments ideology (which is why people sit around and do nothing at your lumberyard until Moscow tells the what to do and could possibly explain why Vodka is the choice of liquid- but there is more to the Vodka story you just need to ask me- its more like a state policy). Finally, a command economy may not lead to allocation efficiency or productive efficiency due to lack of competition and profit motives. Market Economies Do you remember what a market is from chapter 1? If not go back and look it up: I will wait. No seriously, stop reading, find your chapter 1 packet and look it up cuz this is not going to make any sense if you dont remember what a market is- so DO IT.. In economic terms, a market is an arrangement that allows buyers and sellers to come together to exchange goods and services. A market might be a physical location, such as a farmers market, or an Internet site, such as eBay. Regardless of its form, a market can exist as long as a mechanism is in place for buyers and sellers to meet. Therefore, in a market economy, people in the roles of entrepreneurs, laborers, and consumers make decisions in their own best interest: They answer the question of What to produce, How to produce and For whom to produce and is decided in the market. A market economy is characterized by no governmental interference, by a great deal of personal economic freedom in the markets and all factors of production are owned by private citizens. Entrepreneurs own all resources and people can spend their money on the products they want most, which is like casting dollar votes for those products. This tells producers what
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products people want, thus helping them answer the question of What to produce. Businesses are free to find the best production methods which deciding How to produce. Finally, the income that consumers earn and spend in the market determines For whom to produce. If you put this economic system in an economic model, what would it look like (yes if you dont know go back to chapter 1 and figure it out before you continue.Ill wait). It would look like _________________________________________. Many of the most prosperous economies in the world, such as the United States, Japan, South Korea, Australia, and European states are based on this type of economic system. While there are significant differences among the states economic systems, these economies share some of the common elements of market economy: markets and the private ownership of resources to seek profits. There are six advantages to the market system. The first is its high degree of individual freedom. People are free to spend their money on almost any good or service they choose. They also are free to decide where and when they want to work, or if they want to invest further in their own education and training. At the same time, producers are free to decide whom they want to hire, which inputs they want to use, as well as the way they want to produce. The second advantage is that it adjusts gradually to change over time. Americans have always loved their cars and our philosophy is the bigger the better! Gasoline prices were low, so people tended to buy large gas-guzzling vehicles. However, the US experienced a gas shortage in the 1970s. Gas was rationed and prices sky-rocketed. Consumers bought smaller fuel efficient vehicles. The automobile industry worked on its fuel efficiency and when gas prices in the 1980s returned to 99/gallon and people started getting large SUVs with better (not great) fuel efficiency up until 2005 when the prices of gas rose sharply. Now everyone is concerned with fuel efficiency again, to the point of changing the engine design and having a hybrid or electric car (remember my Mini Cooper criteria. If not go back and look at it). Unlike a traditional economy, change is neither prohibited nor punished. Unlike a command economy, change is neither delayed by bureaucracy nor imposed on by others. The third advantage is the central government completely stays out of or has relatively small degree of interference unless it deals with inherit or expressed powers (example would be national defense) of the
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markets buyers and sellers. The forth advantage is that decision making is decentralized. Worldwide, trillion of individual economic decisions are made daily. Collectively, people make the decisions that direct scarce resources into the uses consumers favor most, so everyone has a voice in the way the economy runs. The fifth advantage is the variety of goods and services. You can find pretty much anything you want and if it is not on the market, then you can be an entrepreneur for your niche market. In short, if a product can be imagined, it is likely to be produced in hopes that people will buy it. The final advantage (yes we are almost done with the things with like about the market economy) is the high degree of consumer satisfaction. The choice one group makes does not affect the choices of the groups; If 25% of the people want to buy classical music, 19% want rap, 30% top forty, and the rest smaller % of the left over music types, then all types of music are produced , but the For whom and quantities will vary. Now we also have the disadvantages for the market economy. The first one is that a true market economy does not provide for everyone, it only provides for people that work. Some people may be too young, too old, or too sick to earn a living. Remember your history lessons on the industrial revolution or The Christmas Carol? If you didnt work, you didnt eat, starved and died. Even children ages 2 on up worked. Why do you think families were so big back then.. ok no birth control or family planning. But also the parents had a better chance of surviving if they had lots of children so they could help work. Secondly, the market economy may not provide enough of some basic goods and services. For example, private markets do not adequately supply all of the roads, universal education, or comprehensive health care people would like to have. This is because private producers concentrate on providing products they can sell for a profit. Third, a market economy has a high degree of uncertainty. Workers might worry about outsourcing or that their whole company will move to another location or country in search of lower labor costs. Producers may worry that someone else will produce a better or less expensive product, thereby taking their customers. Fourth, there are no guards against market failures. If a large sector of your economy (like the automobile manufacturing or banking business) would go bankrupt, this may devastate our whole economy. On the other hand, staunch market economy supports would say that this is an advantage, since there
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(Market Economies) Summarize the main ideas from this section?

would be other smaller healthier companies that would take over and fulfill the sick large corporation. The last disadvantage is the philosophical discussion of the plethora of goods and services and do they constitute conspicuous consumption? (Yup dont know look it up in enterprise system chapter one) Free market is a market economy that is set up where products can be bought and sold in markets with limited or without government intervention. Capitalism is a market economy set up where private citizens own and use the factors of production to generate profits. The term capitalism draws attention to the private ownership of resources, while the term free market focuses on the limited amount governments are involved in the factor or product markets goods. As a result, the two terms focus on different features of the same economy, which we call a free enterprise system. Mixed Economy While economists and educators like to identify neat categories like traditional, command, and market economies, the real world is much more like a mixed bag of nuts. If you have a mixed bag of nuts, you have a yummy snack with all different kinds of nuts (peanuts, cashews, walnuts, Brazilian.) but the quantity of each nut is different in each bag. Its the same with states and their economic system- most states have mixed economies. We have three economic systems-traditional, command, and marketand the number of characteristics each state takes from each system is different. We think of ourselves as having a market economy, but during WWI and WWII, the United States and Britain for that matter, had characteristics of a command economy as the government used eminent domain and took the factors of production from its private citizens and the government imposed what to produce, how to produce and for whom to produce on its citizens. Like the command economy, our government has a social net: pays for primary and secondary education, unemployment, food stamps, Medicare, Medicaid, and subsidizes food, housing, and education. Now mix political systems in with our economic systems and our mixed bag of nuts has both whole and cracked nuts in it- things get very complicated. Here are some of them, but dont go NUTs with them. Socialism is a mixed economic and political system in which the government owns and controls some, but not all, of the basic
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productive resources. In socialist countries, the government also provides some of the basic needs of its people, such as education and health care. An extreme form of socialism is Communism, a political and economic system where all property is collectively- not privatelyowned. In a communist system, labor is organized for the common advantage of the community, and everyone consumes according to their needs. Karl Marx and Friedrich Engels are considered the fathers of communism.

Directions: Above the text, re-write in modern English, and then paraphrase what it means in the given space. Communist Manifesto by Karl Marx and Friedrich Engels Karl Marx and Friedrich Engels published the Communist Manifesto in 1848 while in exile in London. In the following excerpt, they present their definitions of private property and capital and class conflict. We Communists have been reproached with the desire of abolishing the right of personally acquiring property as the fruit of a man's own labour, which property is alleged to be the groundwork of all personal freedom, activity and independence.

Hard-won, self-acquired, self-earned property! Do you mean the property of the petty artisan and of the small peasant, a form of property that preceded the bourgeois form? There is no need to abolish that; the development of industry has to a great extent already destroyed it, and is still destroying it daily.

Or do you mean modern bourgeois private property?

But does wage-labour create any property for the labourer? Not a bit. It creates capital, i.e., that kind of property which exploits wage-labour, and which cannot increase except upon condition of begetting a new supply of wage-labour for fresh exploitation. Property, in its present form, is based on the antagonism of capital and wage-labour. Let us examine both sides of this antagonism.

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To be a capitalist, is to have not only a purely personal, but a social status in production. Capital is a collective product, and only by the united action of many members, nay, in the last resort, only by the united action of all members of society, can it be set in motion.

Capital is, therefore, not a personal, it is a social power.

When, therefore, capital is converted into common property, into the property of all members of society, personal property is not thereby transformed into social property. It is only the social character of the property that is changed. It loses its class-character.

The theory of Communism may be summed up in the single sentence: Abolition of private property.

By bourgeoisie is meant the class of modern capitalists, owners of the means of social production and employers of wage labor. By proletariat, the class of modern wage laborers who, having no means of production of their own, are reduced to selling their labour power in order to live.

From the first day to this, sheer greed was the driving spirit of civilization. All history has been a history of class struggles between dominated classes at various stages of social development. The state is nothing but an instrument of oppression of one class by another - no less so in a democratic republic than in a monarchy.

The proletarians have nothing to lose but their chains. They have a world to win. Workers of the world, unite!

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If you go to my website, you will find other resources on the philosophy of communism as a theory. Because in practice, communist governments have become so involved in economic decisions that they are often called command economies.

If government or tradition, as well as markets, answer some of the questions of What, How and For whom to produce, then a society has a mixed economy. The type of political system in a mixed economy is less important than the way basic economic decisions are made. For example, some mixed economies have a political system based on democracy, and others do not. The states involvement in economic decisions also can vary. Some governments provide only for basic needs such as defense, a justice system, and universal education. The more socialist a country is, the more it will make major economic decisions, often with the claim that this is done for the betterment of the people. Some governments intervene only in certain key sectors or industries and leave the rest to markets. If the government
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intervenes too much, a mixed economy can turn into a command economy. There is a very interesting article on the website that asks the question is American turning into a socialist/command economy?. There is a wide range of mixed economies. China has a mixture of traditional, command, and market economies. While traditional has a strong influence in rural areas, the government makes many of the major economic decisions and owns many of the factors of production. China is changing, however, and in recent years the government has allowed some private ownership of resources, and capitalism is beginning to flourish. In Norway, the government owns the basic petroleum industry. It uses the revenue from the sale of oil to other nations to keep its domestic gas process low, finance education, maintain roads, and provide social welfare for its citizens. Because the government controls just one industry, the mixed economy is based on capitalism and markets with some elements of socialism. Cuba and North Korea today are very similar to the former Soviet Union, where a socialist government controlled resources to provide for all of the people. However, the ownership and control of resources were so extensive that many economists thought of the country as a command economy. There are several advantages in a mixed economy. The first advantage provides assistance for some people who might otherwise be left out. All societies include some people who are too young, too old or too sick to provide for themselves and most societies have traditions that address some of these concerns. If the society is a republic, voters can use their electoral power to affect the What, How and For whom decisions even if the government owns no productive resources. For example, the government can pass laws to provide aid for those most in need or to fund road construction. Under socialism, the For whom question is addressed more directly. Ideally, those who are not fortunately or productive enough to take care of themselves still share certain benefits, such as free or low-cost public housing, transportation, medical care, and education.
Religion is the opiate of the masses. Karl Marx, Critique of Hegel's Philosophy of Right Sell a man a fish, he eats for a day, teach a man how to fish, you ruin a wonderful business opportunity. Karl Marx History repeats itself, first as tragedy, second as farce. Karl Marx The last capitalist we hang shall be the one who sold us the rope. Karl Marx

From each according to his abilities, to each according to his needs. Karl Marx
16 An ounce of action is worth a ton of theory. Friedrich Engels

October 16, 2012 The Economist Online

(Mixed Economies) Summarize the main ideas from this section?

While mixed economies tend to provide more services, the costs for these benefits can mean higher costs for citizens overall. Germany, for example, offers a wide range of benefits, but it also has a high tax rate. During economic downturn, when the government collects fewer taxes, less money is available for these programs. The German government has discussed placing limits on benefits, such as unemployment and welfare because of lower revenues. In an effort to reduce public debt, Spain introduced a "complementary" income tax in January 2013 that ranges from 0.75% to 7% depending on individual earnings. This effectively increased the country's top tax rate from 45% to 52% for earnings of just over 300,000 ($390,000). But this change still does not push Spain to the top of the tax pile. The world's highest top rates of income tax, according to KPMG, an accounting firm, are found in Aruba (58.95%) and Sweden (56.6%). When employee socialsecurity contributions are taken into consideration, though, neither country makes the top ten for effective tax rates on gross income of $100,000. Belgians pay the most: on earnings over $47,720 they must pay 33.9% in income tax and 13.1% in social security. Yet while economic pressures may persuade some governments to target their richer citizens, Britain plans to drop its top rate of income tax from 50% to 45% in April 2013 and Greece has not raised its top rate since 2010.
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Period _____

Date Turned in _________

Name____________________

Economic Systems of the World

Traditional Command Market Mixed

Basic Economic Question What to Produce?

Basic Economic Question How to Produce?

Basic Economic Question For Whom ?

Basic Economic Question

How do people make career plans?

How do people make career plans?

How do people make career plans?

How do people make career plans?

Factors of Production

Factors of Production

Factors of Production

Factors of Production

Comparing Economic Systems Advantages Disadvantages 1. 1.

Comparing Economic Systems Advantages Disadvantages 1. 1.

Comparing Economic Systems Disadvantages Advantages 1. 1. 2.

Comparing Economic Systems Advantages Disadvantages 1. 1.

2. 2. 2. 2. 3. 3. 3. 4. 3. 2. 2. 2.

4.

5.

6. 5.

Directions: Identify 2 elements or characteristics in which market, command and traditional are different from each other, 2 ways they are similar to one another, and two ways all three are similar. Fill in the correct portion of the Venn diagram to correspond to the situation.

Traditional
1.

2.

1. 2. 1. 2. 1.

1. 2. 1.

2.

1.

2.

2.

Command

Market

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Period _____

Date Turned in _________

2.1 Directions: Using your notes taken from the text, answer the following questions. If you need to go back to the text to find the information, then your notes need more attention and detail. Not all of the answers will be directly from the text, as there are text implicit questions (think and search) and experience based questions (justify your own opinion) so you will have to use the information from the text and your own knowledge and logic to figure out an answer. 1. Why is the question of who decides which products to sell to consumers important? _______________ ____________________________________________________________________________________ 2. What does the term custom mean as it is used in the text? ___________________________________ ____________________________________________________________________________________ a. What words and phrases provide clues to this meaning?____ ____________________________ b. How does the word custom relate to economic systems? _______________________________ ______________________________________________________________________________ 3. Give an in-depth personal example of when you have bartered. ________________________________ ____________________________________________________________________________________ 4. What is a logical reason that leaders in traditional economies discourage or even punish change? ____________________________________________________________________________________ 5. What type of economic system did The Hunger Games have and prove your answers? If you havent seen the film, see my web site for help. ___________________________________________________ ____________________________________________________________________________________ 6. How does the picture of a butcher shop differ from what you have experienced here? ______________ ____________________________________________________________________________________ 7. Why might command economies lack consumer goods? ______________________________________ ____________________________________________________________________________________ 8. List two goods that have fallen out of favor in the Unites States and then explain why these goods arent produced as widely as they used to be. ___________________ ____________________________________________________________ ___________________ ____________________________________________________________

9. Why are market economies more innovative than either traditional or command economies? ____________________________________________________________________________________ ____________________________________________________________________________________ 10. Most people tip for service in restaurants, but not for service at clothing stores or gas stations. Explain how this illustrates economic behavior by tradition rather than by market or command. Tradition ____________________________________________________________________________ Command ___________________________________________________________________________ Market _____________________________________________________________________________

11. Why did Karl Marx and Friedrich Engels think private property should be abolished? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ 12. Explain Marx and Engels claim that the proletarians have nothing to lose but their chains.
___________________________________________________________________________________________ __________________________________________________________________________________________ _

____________________________________________________________________________________ ____________________________________________________________________________________ 13. List China, North Korea, Cuba, Germany, and the United States under the systems on the chart below where they belong on the spectrum.
Communism Socialism Capitalism

14. Using the chart above, why do the arrows point away from socialism in both directions? ____________________________________________________________________________________ ____________________________________________________________________________________ 15. What role does government play in each of the following? Communism _________________________________________________________________________ Socialism ____________________________________________________________________________ Capitalism ___________________________________________________________________________ 16. What distinguishes socialism from communism? ____________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________
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17. Explain in detail how economic systems help a society deal with the fundamental economic problem? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ 18. How do traditional, command, market, and mixed economies deal with the problem of scarcity? Traditional Command Market Mixed 19. Demonstrate how the United States has a mixed or modified private enterprise economy by filling in one element of each economic system that is shown in the United States today that has not been discussed in the text. Traditional Command Market 20. My three unfamiliar words, page number that they can be found, and definitions are: a.__________________________ Page number____ ______________________________________________________________________________ ______________________________________________________________________________ b. __________________________ Page number____

______________________________________________________________________________ ______________________________________________________________________________ c. __________________________ Page number____

______________________________________________________________________________ ______________________________________________________________________________ 21. Extra Credit: Please tell me where to find your highlighted extra credit items including page number

22. Extra Credit: Not all societies have market economies. Some have command or traditional economies. Use the discussion of opportunity cost and cost-benefit analysis in Chapter 1 to explain why you would or would not like to live in a society with a different economic system. Prepare a decision grid similar to the one found in Chapter 1 to help you with your analysis. Write a paragraph that summarizes your conclusion.

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Period _____

Howmight mightmajor major Essential Question: How economic and social goals in the economic and social goals in the United United States change in your lifetime? States change in your lifetime?

Date Turned in _________ Directions: Before reading the text, brainstorm/connect ideas with your flashcards for this section, and keep the flashcards out so you can refer to them and they can help you. While reading the text, circle flashcard vocab and N2 plus underline C3 and R2. Use the side of the page that is colored to write the definitions of unknown words in your own words, fill in the given reading strategies, paraphrase the main idea for each paragraph and write additional notes or questions.

2.2: Evaluating Economic Performance How do we decide if an economic system, like we studied in section 1, works? President Reagan (1981-1989) thought the Soviet Unions command economy was a complete failure, while the Soviet Unions Premier Brezhnev (1964-1982) would staunchly disagree. As economics is a social science and looks at human behavior, the United States decides or evaluates economic performance using its own criteria, like we did using the decisionmaking grid (and I still think I would look fabulous in a Mini). The criteria consist of 7 economic or social goals or in other words 7 ideas that the United States strives to achieve. Economic and Social Goals Since as Americans we always talk about being free, whether that is speech, press, owning gun, or picketing, the first goal is economic freedom. Americans traditionally place a high value on the freedom to make their own economic decisions. They like to choose their own occupations, employers, and uses for their money. Business owners like the freedom to choose where and how they produce. The belief in economic freedom, like the belief in political freedom, is one of the cornerstones of American society. The second goal is economic efficiency. Lets look at the word efficient which is the adjective version of the noun efficiency. Ever heard of a fuel efficient car? What does it mean? Yup, the car gets better miles per gallon because there is less waste of gas or energy. Most people recognize that resources are scarce and the factors of production must be used wisely. If resources are not used efficiently and are wasted, fewer goods and services can be produced and fewer wants and needs can be satisfied. Economic efficiency is the ability to accomplish a job (production) with a minimum expenditure of time and effort. An example would be Henry Fords assembly line because it increased the number of cars produced in a given time and decreased the amount of effort or energy for the labor because they specialized in a task. The third

goal is economic equity, and this is truly a goal (something that we are working towards and can evaluate our progress). According to Mr. Adams and Mrs. Skorka who worked for the Lakeview Community Schools at the time, in the late 1970s if you took a look at the pay for teachers at LCS, Medium Annual Income by Race and Gender Over Years you would find some interesting things. A male teacher (like Mr. Willison) would receive a yearly salary of $8,000. A female teacher (like me) who has worked the same number of years in the district would be paid $1,000 for doing the same job regardless of the fact that I could be the sole provider or bread winner for my family. The statistics for females worldwide are even more staggering. For more information about the not only gender pay gap, but gaps based on race, see my webpage. As Americans, we have a strong tradition of justice, impartiality, and fairness. We have constitutional amendments, acts and laws that make it illegal to discriminate on the basis of age, sex, race, religion, or disability in employment, but the facts remain. At the national level, we have established a minimum wage- the lowest legal wage that can be paid to most workers. The national minimum wage is $7.25 an hour. Its what economists call a wage floor or lowest level (AKA floor) or least amount that workers can earn as wages in most jobs. There is always controversy about raising the minimum wage and it is a political nightmare, so if you are interested in it, jump on my website for additional information. The fourth economic and social goal is economic security. Remember (or not) that one of the drawbacks of the market economy was the lack of a social safety net and that this is one area that the United States moves to a mixed economy. Americans desire protection from such adverse economic events such as layoffs and illnesses. Since we answer the questions
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Where is the geographic distribution of power with Federal, many states have set up programs to help workers who lose their jobs through no fault of their own and may employers have insurance plans to cover the injuries and illnesses of their workers. Unemployment benefits, Medicaid, or MI Child. MI Child is a state program that if you are a US citizen, under 19 years old, and live in Michigan, for $10.00 a month everyone in your family that meets those criteria has health insurance that covers regular checkups, shots, emergency care, dental care, prescription, hospital care, prenatal care and delivery, and vision and hearing care. For more information about this really good social program, go to http://michigan.gov/dhs/0,4562,7-124-5453_5530---,00.html or http://www.priorityhealth.com/member/plans/mi-individualhealth-insurance/michild. At the central or national level, Congress has set up Social Security which is a federal program of disability and retirement benefits that covers most working people. More than 90 percent of all American workers participate in the Social Security system. Retirees, survivors, disabled persons, and Medicare recipients are eligible for benefits. Survivors are spouses and children of deceased persons covered by. Medicare also provides health insurance for persons 65 or older. The fifth economic and social goal is full employment. When people work, they earn income by producing goods and services for others. Without jobs, people cannot support themselves or their families, nor can they produce output for others. Full employment means that everyone who is looking for employment finds employment so most people want their economic system to provide as many jobs as possible. The goal of full employment even became law when Congress passed the Employment Act of 1946 which main purpose was to lay the responsibility of economic stability of inflation and unemployment onto the federal government in an effort to avoid the wide spread joblessness before World War II. The next economic and social goal is price stability. Stability is a noun meaning a state or quality of being stable, which Mr. Rinehart would loudly reflect in his all-knowing voice, One cannot use a derivative of the defining word in the definition! So lets look at the adjective stable, which means resistant to sudden change or deterioration. Like in chemistry when a substance is stable or has stability, that chemical has a high
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degree of resistance to change in its makeup when things are done to it. Same with price stability, but instead of chemicals, we use prices: We would like prices to be stable or not increase. When prices increase, that is what we call inflation- a rise in the general level of prices. Remember when snacks in the vending machine were 50, 75 or $1.00, pop and water was $1.00 and you used to walk 5 miles to school uphill both ways in blizzards. Now the cheapest things in the vending machine are $1.00 or $1.25 and pop and water are $1.25. Thats inflation.

Now workers need more money to pay for their needs of food, clothing, and shelter. They either need to get a pay raise, find job that pays more, or get a second or third job because you still have to have your needs meet. But what happens to the folks that are on a fixed income? Fixed means it wont change (like a dog that has been fixed- cannot reproduce wont change) and income is the monetary payment you receive each month, A.K.A. wage/salary/social security. So a fixed income is an income (the amount of money coming in) is fixed (does not ever change or
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What problem do people on fixed income have with inflation?

increase) even when prices go up with inflation. Do you see a problem people on a fixed income would have with inflation? No seriously, do you?. Think about it. Ill wait (Jeopardy music please). The high rate of inflation does not only affect individuals, but it discourages business activities as well. During times of inflation, interest rates on loans tend to increase. Interest rates are the price of money. They go up or down when the supply of money changes -- just like the price of apples goes up or down if the supply of apples changes. Inflation is when the supply of money increases faster than underlying economic growth, so when inflation occurs there is a faster growth rate of money supply. Inflation is bad, so when inflation occurs the Federal Reserve Board, which the closest thing we have to a central bank and set the rate of interest banks can charge, raises the interest rate. This makes assets other than money (i.e. bonds ect) more attractive because they have a higher return on them now, thus the opportunity cost of holding money rises......which means the ordinary person would rather save in an account by a bond ect rather than hold money-this reduces the level of money in the economy thus inflation comes down. Does your head hurt? Remember that inflation not only raises interest rates (so it is more expensive for you to borrow money from the banks to expand or start another business or operations), but the general prices for goods and services goes up too (so it costs more for you to produce your product and then eats into your profits). Long story short: if interest rates get too high, they can discourage both borrowing and spending by businesses. Price stability adds a degree of certainty to the future for businesses and consumers alike. The last economic and social goal is economic growth. Most people hope to have a better job, a newer car, their own home, and a number of other things in the future. Overall growth enables more people to have more goods and services. Because the nations population is likely to increase, economic growth is necessary to meet everyones needs. As economists we use several means to do this. One way which we have already discussed is the GDP. If you dont remember what that is, look back at chapter one and yes. I will wait. Another way we describe and analyze at economic growth is with our standard of living. The quality of life is based on the ownership of the necessities and luxuries that make life easier, or it is based on the ownership of the necessities (needs) and luxuries (wants) that we own that make life so we have more free time to play Minecraft.
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What is the main idea from this section?

Now remember that economics is a social science that studies humans and how we deal with scarcity by answering the three fundamental economic questions. As we are humans, we are always evolving and evaluating as individuals, communities and global citizens. We have our 7 economic and social goals, but it is not to say that new goals develop. For example, in China, as you may or may not recall (visit the website for a video reminder), because their cities have horrific pollution, they are focusing on a environmental goal. In the end, we are the ones who decide on the goals that are most important to us, and it is entirely possible that our goals could change in the future. Resolving Trade-Offs Among Goals Remember Life Lesson Number One TINSTAA FL or what the relationship is between trade-offs and opportunity costs? At this point, you know what you should do if you dont remember. Well, those things run true with our economic and social goals. People often have different ideas about how to reach a goal, or the goals themselves might conflict: Economic policies have opportunity costs. Heres example number 1: a policy or tariff that keeps foreign made shoes out of the United States could achieve the goal of full employment in the domestic shoe industry, but it could work against individual freedom if people have fewer choices of shoes to buy. Italians and Danes make awesome shoes- thats all Ive gotta say on shoes! You want full employment, the opportunity cost is individual freedom. Example number 2: Should we raise the minimum wage? On the one hand, yes, because supporters of the increase would argue that an increase is the equitable or right thing to do since you cannot truly live off the current minimum wage. Opponents would argue no because it would create inflation which would cause fewer workers to be hired, restrict the freedom of employers to pay wages that they think are fair, and slow the economic growth down. So how are trade-offs among goals resolved? In most cases, people compare their estimate of the costs to their estimate of the benefits (ooh yeah- cost/benefit analysis or decision making grid), and then vote for political candidates who back their positions. If the majority of voters feel that the minimum wage is too low, then it will be raised. The minimum wage will tend to stay at that level until people feel that it needs
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What is the main idea from this section?

to be changed again. People, businesses, and government are usually able to resolve conflicts among goals because the economic system of the United States is flexible enough to allow choices, accommodate compromises, and still satisfy the majority of Americans. In a democratic society, government reflects the will of a majority of its people and the right of the minority to persuade people through peaceful means is protected. As a result, many government functions reflect peoples desire to modify the economic system to achieve their economic goals. A program such as Social Security, as well as laws dealing with child labor and the minimum wage, reveals how Americans have modified their free enterprise economy. This system most likely will undergo further changes as the goals and objectives of the American people change.

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2.2 Directions: Using your notes taken from the text, answer the following questions. If you need to go back to the text to find the information, then your notes need more attention and detail. Not all of the answers will be directly from the text, as there are text implicit questions (think and search) and experience based questions (justify your own opinion) so you will have to use the information from the text and your own knowledge and logic to figure out an answer. 1. What effect does efficiency have on the number of goods available? ____________________________ ____________________________________________________________________________________ 2. What is the difference between a goal and a characteristic? ___________________________________ ____________________________________________________________________________________ 3. What is the difference between equity and equality? ________________________________________ ____________________________________________________________________________________ 4. Explain why it is important for states to set economic and social goals ___________________________ ____________________________________________________________________________________ 5. Using the graphic organizer below, illustrate how economic and social goals may conflict with one another.
Action: Prohibit imports of foreign cars
help achieve

Goal:

work against

Goal:

6. What three major themes can you identify in the list of seven economic goals? Explain each. a. ______________ ________________________________________________________________ b. ______________ ________________________________________________________________ c. ______________ ________________________________________________________________ 7. How might the goal of protecting the environment conflict with the goal of a. Efficiency _______________________________________________________________________ b. Full employment _________________________________________________________________ 8. How do laws against false or misleading advertising promote the goal of economic equity? ____________________________________________________________________________________ 9. Discuss who benefits from economic security _______________________________________________ ____________________________________________________________________________________ 10. Describe how individuals and businesspeople benefit from economic freedom. a. Individuals ______________________________________________________________________ b. Businesspeople __________________________________________________________________
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11. What might you do to influence the economic goals of the nation? _____________________________ ____________________________________________________________________________________ 12. Explain why trade-offs among goals exists. _________________________________________________ ____________________________________________________________________________________ 13. Explain how society resolves conflicts between economic and social goals? ____________________________________________________________________________________ ____________________________________________________________________________________ 14. Discuss two other ways that Americans have modified the free enterprise economy. a. _______________________________________________________________________________ b. _______________________________________________________________________________ 15. Using the graph Medium Annual Income by Race and Gender Over Years come up with two generalizations and support them: a. _______________________________________________________________________________ b. _______________________________________________________________________________ 16. What problems do people that are on a fixed income have with inflation? ________________________ ____________________________________________________________________________________ 17. Using the information from the text and charts, answer the following questions: a. Which states have the lowest average price of apartments? ___________________ How many hours a week does one need to work in order to have enough money to pay for rent? ________ b. Which state has the highest average price of apartments? ______________________ How many hours a week does one need to work in order to have enough money to pay for rent? ________ c. Which state do you want to live in when you get out of school? _________________ How many hours a week does one need to work in order to have enough money to pay for rent? ________ d. Why do you need to continue on with your education after high school? ___________________ ______________________________________________________________________________ 18. Discuss a positive and negative effect an increase in the minimum wage might have on people. a. Positive effect ___________________________________________________________________ b. Negative effect __________________________________________________________________ 19. Discuss two negative effects an increase in the minimum wage has for business a. _______________________________________________________________________________ b. _______________________________________________________________________________ 20. Discuss one problem that people on a fixed income would have with inflation.____________________ __________________________________________________________________________________
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21. Using the graph on inflation rates over three years, why does the inflation rate of meat, poultry, fish and eggs and dairy and related products increase at a higher/faster rate than the other categories? ____________________________________________________________________________________ ____________________________________________________________________________________ 22. Economic and Social Goals: Compare the figures below and then answer the questions that follow.
Figure 1 Figure 2

a. If the diagram in Figure 1 represents needs and wants, i. label the two diagrams/circles in the figure 1? ii. Explain your answer-(Why did you label what you did?) _______________________________ ____________________________________________________________________________ b. If the two circles in Figure 2 represent the goals of economic security and economic equality, where would you place a federal policy such as the minimum wage lawi. in area A, B, or C? ______ ii. Explain your answer ___________________________________________________________ ____________________________________________________________________________ c. If you were to change Economic Security to Economic Efficiency in Figure 2, would this change your placement of the minimum wage policy? _____ i. How ________________________________________________________________________ ____________________________________________________________________________ 23. My three unfamiliar words, page number that they can be found, and definitions are: a. __________________________ Page number____ ______________________________________________________________________________ ______________________________________________________________________________ b. __________________________ Page number____

______________________________________________________________________________ ______________________________________________________________________________
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c. __________________________

Page number____

_________________________________________________________________________________ _________________________________________________________________________

23. Extra Credit: Please tell me where to find your highlighted extra credit items including page number

24. Extra Credit: Write an extended essay on how the Preamble of the US Constitution reflects the social and economic goals.

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Directions: Before reading the text, brainstorm/connect ideas with

Essential Question: Are the roles of the entrepreneur, the consumer, and the government in the free enterprise system equally important, or is one more important that the others?

your flashcards this for section, and keep the flashcards out so you can refer to them and they can help you. While reading the text, circle flashcard vocab and N2 plus underline C3 and R2. Use the side of the page that is colored to write the definitions of unknown words in your own words, fill in the given reading strategies, paraphrase the main idea for each paragraph and write additional notes or questions.

Free Enterprise -

2.3: American Free Enterprise Capitalism is an economic system in which private citizens own and use the factors of production to make products and generate profits. If the products can be bought and sold in markets without government regulation or interference, we have a condition called free markets. If an economy has both capitalism and free markets, we say that the economy is based on free enterprise. Under free enterprise, resources are privately owned, and competition is allowed to flourish with a minimum of government interference. Because the terms are so similar, people often use the terms free enterprise, free market, and capitalism interchangeably to describe the economic system of the United States. Characteristics of Free Enterprise Economy A free enterprise economy has five important characteristics. The first is economic freedom. We first think

about all the things that we could buy when we think about this characteristic, but it is so much more than that. You have the freedom to choose your occupation, your employer, and your job location. You can even leave your current job and move on to another job that offers greater opportunity. Businesses also enjoy considerable economic freedom as well. They are free to hire the best workers, and they are free to produce the p feel will be the most profitable. Business can make as many items as they want, sell them wherever they please, and normally charge whatever price they choose. In short, they are free to risk success or failure. The second characteristic of free enterprise is voluntary exchange or the act of buyers and sellers freely and
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The creation of barbed wire changed the concept of property. Now people could protect and outline their land. It solidified the concept of owning land as private property.

Barbed wire also changed warfar and not for the better. Guess how.

willingly engaging in market transactions. Voluntary transactions benefit both the buyer and the seller, or the exchange would never occur. Remember the circle flow of economic activity, it works just like that. When buyers spend their money on a product, they act on a belief that the item they purchase is of greater value than the money they gave up- or they would not purchase it. When sellers exchange their product for cash, they believe that the money they received is more valuable than the product they sell- otherwise they would not make the sale. The third major feature of free enterprise is private property rights. This allows people to own and control their possessions as they wish. People have the right to use or even abuse their property as long as they do not interfere with the right of others. (Sounds like something we hear about in government class?) Private property gives people the incentive to work, save, and invest. When people are free to do as they wish with their property, they are not afraid to accumulate, improve, use, or lend it. They also know they can keep any rewards they might earn. During the Enlightenment period (17th and 18th century), property rights came into being. In fact when Jefferson wrote the Declaration of Independences famous phrase, We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness, he was referring to John Lockes (16321704) argument in his Two Treatises of Government that political society existed for the sake of protecting "property", which he defined as a person's "life, liberty, and estate". In A Letter Concerning Toleration, Locke continued with the idea of property rights when he wrote that the magistrate's power was limited to preserving a person's "civil interest", which he described as "life, liberty, health, and indolency of body; and the possession of outward things". The idea of property rights or the right to private property continues with the U.S. Constitution with the 4th (Search and Seizure) and 5th (Rights of Persons) Amendments. The fourth characteristic under free enterprise free enterprise is profit motive. Profit is the extent to which persons or organizations are better off financially at the end of a specific period than they were at the beginning. A motive (noun) is something that causes a person to act in a certain way or do a certain thing, like a motive for murder; the suspect has a reason or an incentive to have committed the murder. You put the two words together and you get profit motive; the desire to be better
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Summarize this section?

off financially (profit) that motivates one to engage in business ventures (motive). Under free enterprise, people are free to risk any part of their wealth in a business venture. If it goes well, they will earn rewards for their efforts. If it goes poorly, they could lose their investment. Profit motive is largely responsible for the growth of a free enterprise system. The last characteristic of free enterprise is competition- the struggle among sellers to attract consumers. Competition is possible because individual entrepreneurs have the freedom to produce the products they think will be the most profitable. Free enterprise allows competition to flourish, benefiting both producers and consumers alike.

The Role of the Entrepreneur The entrepreneur plays one of the most important roles in the free enterprise economy. It is the entrepreneur that organizes and manages land, capital, and labor in order to seek the reward call profit. They are the people who start up new businesses such as restaurants, automobile repair shops, Internet stores and ice cream shops. They include people who may have worked for others at one time, but who decide to quit and start their own businesses. Entrepreneurs want to be their own boss and are willing to take risks to make their dreams come true. If you look at the charts and graphs, most entrepreneurs fail. Others survive and manage to stay in business with varying degrees of success. A few, and only a very few, manage to become fantastically wealthy. Well-known entrepreneurs or businesses that entrepreneurs started include Bill Gates, founder of Microsoft, Mary Kay Ash, who founded Mary Kay Cosmetics, Andrew Carnegie created US Steel, Milton Hershey commercialized chocolate, Ray Kroc established McDonalds, Robert Johnson launched BET (Black Entertainment Television), John D. Rockefeller began Standard Oil, Estee Lauder established Estee Lauder Cosmetics and Steve Jobs launched Apple Computers. Despite the high rate of failure among entrepreneurs, the dream of success is
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What is the main idea from this section?

often too great to resist, and they are both the spark plug and the catalyst of the free enterprise economy. When an entrepreneur is successful, everybody benefits. The entrepreneur is rewarded with profits, a growing business, and the satisfaction of a job well done. Workers are rewarded with more and better-paying jobs. Consumers are rewarded with new and better products. The government is rewarded with a higher level of economic activity and larger tax receipts that can be used to build roads, schools, and libraries for people not even connected with the original entrepreneur. It does not stop there. Successful entrepreneurs attract other firms to the industry who rush in to grab a share of the profits. To remain competitive and stay in business, the original entrepreneur may have to improve the quality of the product or cut prices, which means that customers can buy more for less. (Life Lesson Number 3- never buy the newest and greatest gadget or item when it is unveiled. Wait 6 months and watch the price drops to a realistic level youll save oodles of money. In return for my sound advice, all I ask is that you mail me of the amount that you saved.) In the end, the entrepreneurs search for profit can lead to a chain reaction that brings new products, greater competition, more production, higher quality, and lower prices for consumers. The Role of the Consumer As Pink Floyd would say, You! Yes! You, Laddie! You, me, US (pun intended, see next subsection if you are confused) are all consumers. (Remember what consumers are from chapter 1?) Consumers have power in the economy because ultimately we determine which products are produced. If we, the consumers, like a new product, the producer will be rewarded with profits. In recent years, producers have had outstanding successes with products ranging from video gaming systems and games (Wii, Assassins Creed.) to Internet search engines (Google) to food/cooking (how many food networks, shows, or product lines do we have?). However, if we, the consumer, do not buy it, firms may lose money or even go out of business. Ever heard of products like Crystal Pepsi, celery- flavored Jell-O and Dr. Cares aerosol toothpaste, which kids discovered that they could spray around the bathroom? Those products were put on the market, but were rejected. The term consumer sovereignty recognizes the role of

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What is the main idea from this section?

the consumer as sovereign, or ruler, of the market. The phrase the customer is always right reflects this power. OK time to be honest while reading this, how many times have you checked or wanted to check your phone, computer, social media, e-mail, played Angry Birds or Happy Wheels, downloaded the newest app or played with your music? No really, think about it Its more than that Dont forget what you did at the beginning of this paragraph Thats what I thought. As consumers, we have a very short attention span and desire, crave or simply die without updates, new versions or new and different products. Think about Angry Bird. If you have the original, do you also have Angry Bird Star Wars, Bad Piggies, Amazing Alex, Angry Birds Friends, Angry Birds Space, Angry Birds Seasons, Angry Birds Rio and Angry Birds Trilogy? The Finnish computer game developer Rovio Entertainment released its first Angry Birds app to Apple iOS in December 2009 and now it can be downloaded on Android, Symbian and Windows Phone operating systems and has expanded to video game consoles and PCs. Why because we, the consumer, demanded something new to entertain us. Americans buy more home computers than TV every year, even though the computer has been around about 25 years. Heaven help us if we have to wait for the computer to boot up we want to be entertained right now right this minute or we will find something else to do. I feel so hurried and stressed! So, in conclusion, (this will be fast) the dollars consumers spend in the marketplace are the vote that give them a say in what is, and what is not, produced. Because of this, consumers play an important role in the American free enterprise economy.
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The Role of the Government As we have a federal system (remember our rap Unitary, Federal and Confederate, if not, well get to that), are democratic because we have not only consumer sovereignty, but popular sovereign, and a republic as everyone votes our government in (and you thought government was a different class) the role of government, whether national (DC), state (Lansing) or local (Cato Township, Village of Lakeview) stems from the desires, goals, and aspirations of its citizens. Government has become involved in the economy because as a society, we work towards our economic and social goals. The questions we need to answer is, How big of a role does the government play?, and that, my friends is a personal and political answer. However, in general, the role of government in the economy is normally justified whenever the benefits outweigh the costs. (yes I do know that is subjective but go with it) In general, as a society we can agree on four roles for government. The first role is a protector. We want the government to pass and enforce laws that protect us against false and misleading advertising, unsafe food and drugs, environmental hazards and unsafe products. The governmental agency that oversees these concerns is called the Food and Drug Administration, otherwise known as the FDA. Here is an example of the FDAs role as protector against false and misleading advertising: On September 23, 2011 the FDA reported that the promotion and advertising of the FDA approved LASIK procedure often failed to properly inform consumers of the indications, limitations, and risks of the LASIK procedure and the ads were pulled. Here is an example of unsafe food or drugs: The government recalled on 2/8/2013 Lean Cuisine Ravioli because it had glass fragments in it or on 12/21/2012 Slimdia Revolution Dietary Supplement because it contains an active drug ingredient not listed on the label. For a complete listing of all FDA recalls, go to http://www.fda.gov/safety/recalls/default.htm. Example of environmental hazard and unsafe products: We can no longer have lead in our paint and we must test for lead as a precaution for all children. In June 2007, the FDA recalled over 1.5 million toys that were imported from China because the toys were painted with lead paint and children were getting lead poising from them. One other organization that is instrumental as a protector is the CDC, the Centers for Disease and Prevention which is the governments
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public health agency. The CDC works at the national level and with the states to focus attention of developing and applying disease prevention and control, especially infectious diseases (Swine flu), foodborne pathogens (salmonella outbreaks) and other microbial infections. The second role government has is a provider and at all levels, government provides goods and services for its citizens. The national government (Washington DC) provides a system of justice and national defense. They provide subsidies to parts of the economy, such as farmers or schools to have the free or reduced lunch program. It gives money in the form of grants to state and local governments for some programs such as road construction. State governments provide education, police protection, highways, and public welfare. Local governments provide parks, libraries, sanitation, water, recycling programs and public transportation systems. The third role of government is as a regulator. The national government is charged with preserving competition in the marketplace. This is where there is much discussion on how much government is too much government and it is political. The government also over sees communications, interstate commerce, and entire industries, such as banking and nuclear power. Many state governments oversee insurance rates and licensing requirements and fees for transportation (cars/trucks/busses) and professions (teachers/lawyers/hairdressers). Local governments regulate economic activity with building and zoning permits. As you can see, the regulatory role of government is controversial. Most businesses and professionals do not like to be told how to run their affairs. However, consumers do not always know or want to understand the risks that some produces contain, like potential poisoning from unsafe food preparation or false and misleading advertising form some companies (i.e. cigarettes). The last role government has is a consumer. All levels of government, like any business, consume scarce resources to fulfill their role. Government has grown so much in recent years that it is now the second-largest consuming unit in the economy, after the consumer sector, eclipsing spending by all private business combined. Lets take a look at how the governments roles work using a historic perspective. Why historic? you ask Well, with 20/20 hindsight, you can see it all. During the 1920s the stock market

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went through a time of rapid expansion and wild speculation. The stock market was a new idea and the US economic system was certainly of the strict Market and laissez-faire variety and not so much into the mixed economic system. There was little, if any, government oversight/involvement in the market nor was there any social net to help people. Everyone was betting on getting rich fast. (Life Lesson Number 1 would apply here). Well stocks were going up and people were getting richer on paper, because you dont get your money until you sell your stock, and you want to sell it at the highest amount, so people kept it. Using your life savings, you buy 5 stocks at $25.00 a share in 1925 for a total investment of $125.00 (price of stock 25 x number of shares 5) ; in 1927 the price is $45.00 a share, so your initial investment is valued at $225 (5 shares X $45) on paper. More people are coming into the market, so the prices keep going up. People are encouraged by the banking industry to take loans out to buy stock because everyone knows that the stock market is the way to Easy Street! We would keep those shares in the market? Yup and buy more because like as Adam Smith say, People are motivated by self-interest. You take out a $4,500 loan and buy 100 shares. You now have loan payments to make on your stock investment, plus loan payments on all the other things that you bought because you see yourself as moving toward living on to Easy Street. In the winter of 1928, you lose your job, but thats ok, you have 105 shares of stock that is valued at $55 a share or worth $5775. You decide to be a gentleman and be a full time stock investor. You borrow more money ($5,500) to buy another 100 shares because the bank says its a sure bet. You need to sell some of the stock to pay for living expenses, so you sell your original 5 stock (5 X $55= $275) and 10 of your other stock (10X55=$550). So now you have no real income (no job) and need to live off of your stock investments which equal to 190 shares of stock at $55.00 per share for a total of $10,450. You own the bank $9,000 in loans. More people lose their job and play this game, which drives the price of stocks even higher. In August 1929, all was great with the stock market and your stock was valued at $60 per share, but there were other things going on in the economy that werent so great. Production had declined, people were laid off so unemployment had risen, wages were low, proliferation of debt in both the private individual and
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business sectors, and a struggling agricultural sector was prevalent. Stock prices began to decline in September and early October 1929. On October 18, 1929, stock prices started to go down (yours went to $59) and panic started to set in. By Black Thursday (10/24/1928) almost 13 million shares of stock were sold. Banks and investment companies tried to stabilize the market by buying those shares. Your stock is now worth $50 per share (the stock that you bought at $55 per share you sell at a loss). Do you wait to see what the market does or do you sell? By Black Tuesday, October 29, 1929 the stock prices collapsed completely and nearly 16.5 million shares were sold. You sold your stock on that Tuesday for $35.00 a share (190x35=$6,650) for a total of $6,650. Your debt is over $9,000, you have no job, no unemployment or welfare system and the bank comes and takes everything you own and you and your family is living on the street. In the aftermath of Black Tuesday, America and the rest of the industrialized world spiraled downward into the Great Depression (1929-39), the deepest and longest-lasting economic downturn in the history of the Western industrialized world up to that time. By 1933, nearly half of Americas banks had failed and unemployment was approaching about 30 percent of the workforce. There was economic chaos and doubts about the market system. Governments economists stepped in and tried to bring the chaos to an end and restore the faith of the market system in peoples hearts. What is it that we use when we want to discuss an economy? ___________________________________ Yup, the Scope of Economics. They look at what happened and described it, then they analyzed who, what, how, and why and can up with ways to prevent this from happening again. They explained all of this to Congress, who intern, set up the federal Security and Exchange Commission or the SEC. The Securities and Exchange Commissions mission is to
protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. (http://www.sec.gov/about/whatwedo.shtml)

The SEC is the commission or agency of the government that oversees and regulates the selling of securities and where and how those securities can be sold. A security is an instrument representing a freely transferable and salable investment, which includes the risk of loss in value. Securities include assets such as stocks, mutual funds, and bonds. An exchange is any market place where the securities are traded or sold, and its main purpose is to give
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companies, governments, and others a place to sell their securities to the investing public. They can be physical place, like the New York Stock Exchange and the Tokyo Stock Exchange, or exist on an electronic platform, like the Nasdaq. The statutes administered by the SEC are designed to promote full public disclosure and to protect the investing public against fraudulent and manipulative practices in the securities markets. One way it does this is by requiring all publicly owned companies to provide financial information concerning sales and profits to the general public on a regular basis in a way that is easily understood for investors. The SEC also investigates and helps litigate individuals and companies that have violated federal laws. The SEC is a provider of rich information about how to be an entrepreneur, what grants and programs are available for potential entrepreneurs, as well as plethora of other topics that are pertinent to starting and maintaining a free enterprise system. So the roles of government are: protector, provider, regulator, and consumer. This requires a lot of money going out, but not much money coming in. Im sensing a cash flow problem, but with all good government rhetoric, well discuss that later. Modified Free Enterprise Perhaps as an unintended consequence of governments role as protector, provider, regulator, and consumer is the emergence of the mixed or modified free enterprise economy. In this economy, people and business carry on their economic affairs freely, but they are subject to some government intervention and regulation. If you are an economic anarchist and prefer to have no government involvement in the economy, then trade would not be voluntary or nonexistent because when disagreements and confrontation happen, and we all know it will because we are social animals (look to our hallways and lunch time), there is no unbiased system there to protect people. We would go back to the force theory of how a State comes to be. So it maybe a rally cry, but this is not realistic, after all, some services, such as national defense and a system of laws and justices, cannot be supplied by the private sector alone. If you want less government involvement, vote those people into public office (hint: they tend to be Republicans). If you thing government should have a bigger role, vote those people into public office (hint: they tend to be Democrats).
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What is the main idea from this section?

2.3 Directions: Using your notes taken from the text, answer the following questions. If you need to go back to the text to find the information, then your notes need more attention and detail. Not all of the answers will be directly from the text, as there are text implicit questions (think and search) and experience based questions (justify your own opinion) so you will have to use the information from the text and your own knowledge and logic to figure out an answer. 1. What type of economic system would the Free Enterprise system be categorized as?_______________ a. Why? _________________________________________________________________________ ______________________________________________________________________________ 2. Fill in the illustration with characteristics of a free enterprise system. Private Property
1. 1. Competition: Producers/sellers

Voluneary Exchange

Economic Freedom
1. People

Consumers 1.

Profit Motive

2. Businessess

a. Write an appropriate title of the illustration. _________________________________________ b. Give examples of each: i. Economic freedom________________________________________________________ ii. Private property __________________________________________________________ iii. Voluntary exchange _______________________________________________________ iv. Profit motive _____________________________________________________________ v. Competition _____________________________________________________________ c. Which characteristic in the illustration holds the other characteristics together? _____________ i. Why ___________________________________________________________________ ________________________________________________________________________ d. What items are included the category of private property? _____________________________ e. Free Enterprise describes a market economy in which private citizens __________________ ________________________________________________________________________ and businesses ____________________________________________________________________.
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3. How are the terms free enterprise, free market, and capitalism related? ____________________________________________________________________________________ ____________________________________________________________________________________ 4. Why is it economically efficient and necessary for people to keep the rewards they earn? ____________________________________________________________________________________ 5. How do private property rights serve as an incentive in a free enterprise economy? ________________ _________________________________________________________________________________ 6. Some industries, such as fast-food restaurants, are highly competitive, while others, like cable TV providers have little competition. Identify one other example of a competitive industry and one other example of an industry with little competition and then compare and contrast them. (Yes ,I will check to make sure you dont have someone elses you know I will) a. Competitive industry ___________________________ b. Noncompetitive industry ________________________ i. Similarity ________________________________________________________________ ii. Difference _______________________________________________________________ 7. Answer the following questions: a. What do spark plugs do? _________________________________________________________ b. What is a catalyst? ______________________________________________________________ c. Why are entrepreneurs considered both spark plugs and catalysts of the free enterprise economy? i. Spark plug _______________________________________________________________ ii. Catalyst _________________________________________________________________ 8. How do consumers influence the economy? ________________________________________________ ________________________________________________________________________________ 9. Using specific examples, explain why Americans want government to play a role in the economy? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ 10. Which role do you think has the greatest influence of the free enterprise economy: the entrepreneur, the consumer, or the government? Justify your answer. (Yes with specific and detailed examples) ____________________________ _____________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________
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11. How is the constitution protection of private property rights necessary to the other characteristics of the U.S. free enterprise system? ____________________________________________________________________________________ ____________________________________________________________________________________ 12. How has the development of modern transportation and communication systems affected the type of economy that exists in the United States? _________________________________________________ ____________________________________________________________________________________ ________________________________________________________________________________ 13. My three unfamiliar words, page number that they can be found, and definitions are: __________________________ Page number____ ____________________________________________________________________________________ ________________________________________________________________________ __________________________ Page number____ ____________________________________________________________________________________ ______________________________________________________________________ __________________________ Page number____ ____________________________________________________________________________________ ______________________________________________________________________ 14. Extra Credit: Please tell me where to find your highlighted extra credit items including page numbers.

15. Extra Credit: Explain in detail an event in American history that you believe was most significant in developing and enhancing the U.S. economic system and justify your answer.

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