Econ Ch. 2

use of resources based on ritual, habit, or custom

Inuit tribes, Australian Aborigines

little uncertainty over what to produce, how to produce, and for whom

• discourage new ideas and new ways of doing things; stagnation; lower standard of living

central authority (government) makes decisions

Soviet Union, Cuba, North Korea

• cheap public services & health care; can change direction drastically (switch from agriculture to industry)

• ignore basic wants & needs of consumers; large decision making bureaucracy raises cost of production; no flexibility; few rewards; Limited private property, few personal freedoms

people make decisions in their own best interest; private ownership of resources & factors of production

(U.S., England, Japan, etc.)

individual freedom (how to spend money, where to work, etc.); adjusts gradually to change over time (buying gas vs. buying SUVs); small amount of government interference; decision making is decentralized; variety of goods/services; high degree of consumer satisfaction

• doesn’t provide enough goods/services for everyone; high degree of uncertainty (loss of job)

choose your job, etc.

not wasting resources

fairness; minimum wage (lowest legal wage paid to most workers)

protection; Social Security, healthcare, unemployment insurance

everyone has a job

avoid inflation (rise in general level of prices)

better job, newer car, etc.

resources are privately owned, & competition thrives with minimum government interference

• Economic  freedom

• Voluntary exchange

• Private property rights; gives people incentive

• Profit motive: incentive to earn reward of money

• Competition: struggle to attract consumers

act of buyers/sellers freely willing to engage in market transactions

• Organizes & manages land, capital & labor

• Tired of working for someone else

• “be my own boss”

  • Dream of success, but high risk of failure

growing business, hiring more workers, pay raises, better products, government gains more tax revenue, creation of more companies which can lead to lower prices

They determine which products are produced based on their buying habits

customer rules the market; “customer is always right”

• change; new ideas & products

• protector

• provider

• regulator

• consumer

enforce laws that protect consumer (FDA, EPA, etc.); enforce laws that prevent abuse (discrimination laws)

• provides goods/services to citizens

  • Justice system, national defense

  • Funding for schools, roads, libraries, agriculture

• preserving competition

  • Oversees interstate commerce, communication, banking, insurance rates, building permits

• spend money to consume resources

  • Government spends more than all private businesses combined