1. What is an Economy? Chapter 3.1

2. Economic Systems Economy: the organized way a nation provides for the needs and wants of its people A county’s resources determine economic activities such as Manufacturing Buying Selling Transporting Investing

3. Resources Are all the things used in producing goods and services Economists call these “Factors of Production” 4 categories Land (tangible) Capital (tangible) Labor (intangible) Entrepreneurship (intangible)

4. Land Everything contained in the earth or found in the seas Coal, crude oil, lakes, trees, plants, soil etc.

5. Capital Money to start and operate a business Also goods used in production Factories Office buildings Computers Tools Lumber (processed raw materials Steel Includes infrastructure Physical development of countries Roads Ports Sanitation facilities Telecommunications

6. Labor All the people who work (full & part-time) Economies with well-educated and well-trained labor have an advantage

7. Entrepreneurship Skills of people who invest their time and money to run a business Organize factors of production to create goods and services Employers of a population

8. Scarcity Different economies have different amounts of resources Limited resources Unlimited wants and needs Scarcity forces nations to make economic choices

9. How Does an Economy Work? Three Basic Questions nations must ask: Which goods and services should be produced? How should goods and services be produced? For whom should the goods and services be produced? Answers define their economic system

10. Economic Systems: 3 Categories Traditional Economy Market Economy Command Economy

11. Traditional Economy Traditions & rituals answer economic ?’s Based on cultural or religious practices Passed from one generation to next Activities assigned through tradition rather than choice

12. Market Economy In pure market economy there is no government involvement in economic decisions Consumers decide what should be produced Businesses decided how to produce goods and services

13. Command Economy Gov’tdecides what, when and how much will be produced and distributed Gov’t controls factors of production

14. So what type of economy do we have? Traditional? Market? Command?

15. Mixed Economies No economy is purely traditional, market, or command US = mixed economy leaning toward market economy (we have gov’t involvement) 3 political philosophies have shaped world economies: Capitalism Socialism Communism

16. Capitalism Political & economic philosophy characterized by marketplace competition and private ownership of businesses Same as “free enterprise” Political foundation is usually Democracy power in the hands of the people Multiple political parties Ex. US, Japan

17. Communism Is a social, political, and economic philosophy Gov’t is authoritarian- controls factors of production No private ownership of property or capital “goods owned in common” theory where gov’t is representing the community as a whole Little or no economic freedom Ex. Cuba, North Korea

18. Socialism Originally referred to a system on its way to communist ideal of classless society Today most socialist countries are democracies More gov’t involvement than Capitalist nations – runs key industries, makes decisions Have more social services Businesses & individuals pay higher taxes Ex. Canada, Germany