Economic Systems

1. \ Economic Systems

2. Objectives • You will demonstrate knowledge of basic economic concepts and structures by comparing the characteristics of: • Market • Command • Traditional

3. Warm Up • We’ve discussed the fact that the American capitalist system is based on free market principles. • What countries can you list that have different economic systems than ours? • How would you describe these systems?

4. Factors of all Economic Systems • A variety of methods can be used to allocate goods & services. • People acting individually or collectively through government choose which methods to use to allocate goods & services. • People in all economies must answer three basic questions: • What goods and services will be produced? • How will these goods and services be produced? • Who will consume them?

5. Three Basic Economic Questions • What goods and services are to be produced? • Must ask this due to scarcity of resources • Don’t have enough to produce everything • Do you chose what people need or what is profitable?

6. Three Basic Economic Questions • How are goods and services to be produced? • Large factories or mom and pop shops? • Corporate farms or family farms? • Cooperatives?

7. Three Basic Economic Questions • Who will consume these goods and services? • Who gets what is the toughest of the questions. • How do you decide who gets it? • Base it on need? Base it on wealth? Base it on first in line? Base it on equality or fairness? • How/Who to decide who • is in need or what is fair?

8. Economic Systems Based onEconomic Goals • 6 Possible Economic Goals • Can choose to achieve one or more; not all 6. • Economic Freedom – all people have full freedom of what to make and buy or sell without government interference • Usually a goal, but tough to fully achieve • People want protection from violators; government expected to do this.

9. Other Economic Goals • Economic Efficiency – economy strives not to waste ANY of its resources • Includes all natural and human resources • Has a goal of FULL EMPLOYMENT – no waste. • Economic Equality – strives to give all in society an equal amount • Problems arise with what is equal? • Does everyone get a little? • Do the rich or the poor receive more?

10. Other Economic Goals • Economic Growth – strives to produce more and better goods • Via science, technology, innovation, entrepreneurship. • Usually a goal of all economic systems • Economic Security – strives to support those in society who cannot provide for themselves • Includes the young or old, sick or dying, etc… • Economic Stability – strives to keep the economy stable and running well • Keeps things predictable; having goods, water, electricity, jobs and prices relatively consistent

11. 3 Basic Economic Systems • Traditional Economy • Oldest system • Based on the traditions and customs of a group of people – who hunts, gathers, etc. • Often found in small clan societies

12. 3 Basic Economic Systems • Command Economy • Found in declining # of countries • Decisions by the State • Controlled economy/populace • Similar economic system found in ancient civilizations • Egyptian pharaohs commanded what to grow and what to do with taxes, people, slaves, etc.

14. Capitalism, Socialism, & Communism • Born out of the Industrial Revolution • People become rich off new machines; poor workers working in terrible conditions • Socialism - created to help the workers • Idea that society owns all property – equality • Spreads through USSR and other countries • Communism – society owns all property and wealth -- communal ownership • Struggles due to use of a command economy • Government tries to control production & distribution of millions of products • Unable to do so like free markets can; resources wasted • No incentive to work harder so quality of products is poor

15. 3 Basic Economic Systems • Market Economy - AKA Capitalism, free market, free enterprise • decisions by individual consumers – no one tells anyone what to make, all choices are made voluntarily

16. Characteristics of Market Economies Private ownership of resources - provides incentives for owners of resources to weigh the value of present uses against value of conserving those resources for future use. Competition among businesses - tends to lower prices and raise quality. Prices determined in marketplace through interaction of supply & demand

17. Characteristics of Market Economies (cont.) • Consumer Sovereignty - concept that consumers’ dollars “vote” -- tell businesses what to produce. • Profit Motive - incentive for businesses to produce what consumers demand & to produce those goods & services efficiently (keeping costs down) in hopes of earning greater profit. • Limited government - acts as referee • Protecting consumers, workers, the environment • Competition in the marketplace.

18. U.S. Economic System

19. Mixed Economies • The U.S. is primarily a market economy; however, since it has elements of government involvement (e.g., taxation & regulation) it is sometimes called a mixed economy. • Hong Kong is the freest of the market economies in the world… • Most of the world’s economies today are mixed economies and exist on a continuum between market and command. • Some lean toward market; others lean toward command.

20. Governments Role in Economy • Gov’t needed to set up institutions for markets • Legal system, currency, labor laws, etc. • Also limits sale of dangerous products– the case for regulation. • Certain foods, drugs, cosmetics, etc. • Gov’t also provides services that would not usually be available due to price • Public works – sewers, roads, highways, etc. • Each country different in what they provide to society • Role of government determines level of freedom

21. Government impacts flow of goods & services • Employs large # of workers in US; purchases largest # of goods • Government collects taxes to purchase goods • Pays wages to employees for services • Pays for services like Soc. Sec. • Referred to as “transfer payments” -- Transfers money from one household to another • Gov’t involvement places countries on the Mixed Economy Continuum • Explains the level of economic freedom of each country

24. A Where are the people in each cartoon? Who or what decides what consumers get in Cartoon A? Cartoon B? B What advantages and disadvantages do you see represented in Cartoon A? Cartoon B? Which store would you prefer to shop in, and why?

25. Matrix of Economic Systems

26. Matrix of Economic Systems

27. Matrix of Economic Systems

28. Matrix of Economic Systems

29. Matrix of Economic Systems

30. Matrix of Economic Systems

31. Directions: Label the following countries on the map. You may abbreviate. Then, pick a color to represent command economies, market economies, and traditional economies. Create a key below the map and color in the countries you labeled with the color that represents their economic system. (Canada, United States, Hong Kong, Ireland, Australia, Ethiopia, Somalia, Afghanistan, China, Vietnam, North Korea, Cuba) Canada Ireland North Korea US China Cuba Afghanistan Hong Kong Vietnam Ethiopia Somalia Australia

32. The Flow of Goods and Money • Markets work well due to circular flow • One person’s output is another’s input • Flow goes between households and firms • Households include a person or group of people • Firms are businesses • Land, labor & capital are traded for wages • Goods are traded to people for money

33. Two types of markets in circular model • Product market – deals with the goods and services created by firms which are bought by the households • Factor market – deals with factors given up by households and paid for with wages or purchases of land • Considered factor payments • All these things work without intervention because people are worried about their own interest • People work for money to buy goods, firms build products to sell them for profit

34. Use the picture below and give an example of each of the arrows that would represent what you or your parents gain/ lose in this model.

35. Higher Level Thinking • How does the economic system/form of government impact income inequality? • Is one form better than another? • You have now learned about the strenghts and weaknesses of the 3 economic systems. • After looking at the following videos, please respond to the writing assignment. • http://www.bing.com/videos/search?q=globalization+income+inequality&FORM=HDRSC3#view=detail&mid=A85F58253C7DDF8C7D55A85F58253C7DDF8C7D55 • http://www.bing.com/videos/search?q=effect+of+trade+on+global+income+inequality&qs=n&form=QBVR&pq=effect+of+trade+on+global+income+inequality&sc=0-20&sp=-1&sk=#view=detail&mid=8706D200A1593806790B8706D200A1593806790B

36. Exit Ticket • What are the three basic economic questions? • How does each type of economy answer the three basic economic questions? • _________________________________________ • Homework – writing assignment