Comparing and assessing economic systems
1 / 19

Comparing Real-World Systems - PowerPoint PPT Presentation

  • Uploaded on

COMPARING AND ASSESSING ECONOMIC SYSTEMS Comparing Real-World Systems Comparing real-world systems involves understanding the forces influencing systems how they operate how they perform Forces Influencing Economic Systems

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about 'Comparing Real-World Systems' - paul

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

Comparing real world systems l.jpg
Comparing Real-World Systems

  • Comparing real-world systems involves understanding

    • the forces influencing systems

    • how they operate

    • how they perform

Forces influencing economic systems l.jpg
Forces Influencing Economic Systems

  • Operation and performance of systems affected by many factors such as

    • level of economic development

      • systems work differently at different levels of economic development

      • as economies develop, their systems change

    • social and cultural forces

      • traditions and customs

      • social stratification by sex, race, caste, religion, etc.

    • environment

      • climate, population, access to sea, natural resources, proximity to other systems

How they work l.jpg
How They Work

  • Determination of social preferences

    • voting at ballot box

    • voting with dollars

    • decisions of non-elected rulers

  • Institutions

    • fundamental organizational arrangements for undertaking economic activity

      • perfect competition

      • private ownership

      • central planning

Slide5 l.jpg

Policy Instruments

tools used by the state to achieve social or political goals

fiscal instruments

taxes, transfers, government spending

monetary instruments

open market operations

reserve requirements

discount rates

exchange rate manipulations

Slide6 l.jpg

Direct controls


production orders

fixing prices and wages

direct allocation of resources to factories

Changes in the institutional framework

property rights

rules for operation of markets

Slide7 l.jpg

Resource allocation and income distribution

complementary approaches stressing different aspects of the same process

centralized versus decentralized decision making and information

command versus exchange

administrative orders versus market activity

planning versus market

manner and extent of state intervention in the economy

How they performance l.jpg
How They Performance

  • Which system works best?

  • Two steps involved

    • select criteria to be used to compare performance

    • assign weights to these criteria

      • according to one’s own preferences

      • according to system’s preferences

    • weighting not a problem if one system superior in all respects; otherwise, weights are critical

Slide9 l.jpg

Commonly used criteria

economic growth


distribution of income

economic stability

economic development

Qualitative criteria that cannot be measured statistically

economic freedom

economic security

continuation of national existence

Economic growth l.jpg
Economic Growth

  • Economy grows when its production capacity increases (outward shift of production possibilities curve)

  • An increase in output may not be growth


Increased Output

Without Growth









Economic efficiency l.jpg
Economic Efficiency

  • No wasted resources

  • Getting the most output for given inputs

  • On production possibilities curve



Not efficient




Measuring efficiency l.jpg
Measuring Efficiency

  • Ideal measure: distance to PPC

  • Practical measure: factor productivity

PPCs represent two countries with same

resources, both operating at point A.

They are equally productive, but one

is efficient, the other is not.






Distribution of income l.jpg
Distribution of Income

  • How equally is income distributed?

  • The Lorenz Curve and Gini Coefficient

  • What is the ideal distribution?


Gini Coefficient =

Area A

(Area A+Area B)

Percent income


Lorenz Curve




Households ranked by income

Economic stability l.jpg
Economic Stability

  • Various measures

    • volatility of business cycle

    • unemployment

    • inflation

Economic development l.jpg
Economic Development

  • Stages of development

  • Which system best facilitates the structural changes needed for economic development

Continuation of national existence l.jpg
Continuation of National Existence

  • Was the break-up of the Soviet Union and Yugoslavia an inevitable consequence of their economic systems?

  • Must the remaining planned socialist economies abandon planned socialism if they are to survive?

Economic freedom and economic security l.jpg
Economic Freedom and Economic Security

  • Milton Friedman’s “Free to Choose”

    • freedom of occupational choice, consumption, ownership

  • The security of knowing where one’s next meal is coming from

    • certainty of employment and income

  • The importance of keeping straight the different values of the three systems

Difficulties assessing systems l.jpg
Difficulties Assessing Systems

  • Some criteria easy to define but hard to measure

    • distinguishing growth from business cycle

    • measuring efficiency

    • flawed measures of unemployment and inflation, especially with planned socialism

  • Distribution of income easy to measure but hard to assess

    • what is the ideal distribution?

Slide19 l.jpg

Assigning weights is highly subjective

Difficult to distinguish between effect of system on performance and effects of other determinants of performance such as

level of development

population differences

educational differences



proximity to other systems