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Economic Systems

Economic Systems. Discussion Topic. How do economic systems answer your basic economic questions?. Basic Economic Questions. What to produce How to Produce For whom to produce. Traditional Economy. Answers the basic economic questions by rituals, habits, religious beliefs, and customs.

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Economic Systems

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  1. Economic Systems

  2. Discussion Topic • How do economic systems answer your basic economic questions?

  3. Basic Economic Questions • What to produce • How to Produce • For whom to produce

  4. Traditional Economy • Answers the basic economic questions by rituals, habits, religious beliefs, and customs

  5. Traditional Economy • Individual roles are determined the elders • Examples: herding cattle, hunting and gathering, subsistence farming

  6. INUIT OF CANADA

  7. Bushmen of Kalahara

  8. Bush women of Kalahara

  9. Central Australia

  10. Traditional Economy Advantages • There is little or no uncertainty- everyone knows the role they play • Life is generally stable, predictable, and continuous

  11. Traditional Economies Disadvantages • Tends to discourage new ideas and new ways of doing things • Lack of progress lowers the standard of living

  12. How do traditional economies answer the basic economic questions? • 1. What to produce? • Whatever customs and traditions dictate

  13. How do traditional economies answer the basic economic questions? • 2. How to produce? • Whatever customs and traditions dictate

  14. How do traditional economies answer the basic economic questions? • 3. For whom to produce? • Whatever customs and traditions dictate

  15. Command Economy • Basic Economic Questions are answered by the government

  16. Command Economy • Only two Command Economies left in World-Cuba and North Korea

  17. Command Economy • It is associated with communism and socialism

  18. Cuba

  19. North Korea

  20. Advantages of Command Economy • The government has total control over production and its factors, thus the economy can change rapidly. Whatever is needed most will be produced

  21. Command Economy • Example is collective farms which are owned and operated by the central government. Money made goes to the government

  22. Advantages of Command Economy • Free education, free healthcare, and other public services

  23. Disadvantages of Command Economy • Economy is designed to meet needs not wants • There is no incentive to work hard—people don’t often lose their jobs so they do the bare minimum

  24. Disadvantages of Command Economy • Economy supports a large bureaucracy (government) which means decision making is slow, costs of production are high, and there is no flexibility

  25. Disadvantages of Command Economy • There is no reward for initiative

  26. How do command economies answer the basic economic questions? • 1. What to produce? • Whatever the government says to produce

  27. How do command economies answer the basic economic questions? • 2. How to produce? • However the government tells you to produce

  28. How do command economies answer the basic economic questions? • 3. For whom to produce? • For whomever the government tells you to produce

  29. Market Economies • Basic economic questions are answered by consumers

  30. Market Economy • Laissez-faire is a pure market economy meaning “allow to do”. The government has little or no power in what is produced or sold.

  31. Market Economy • Free-enterprise system- business owners set their own prices and sell their own goods.

  32. Advantages of Market Economy • Adjusts to change based on consumer wants • High level of individual freedom • Low level of government interference

  33. Advantages of Market Economy • Because individuals make the decisions, everyone has a voice in the way economy runs

  34. Advantages of Market Economy • Wide variety of available goods and services • Many choices=high degree of consumer satisfaction

  35. Disadvantages of market Economies • Poverty: only those with money can participate

  36. Disadvantages of market Economies • Market does not provide for people’s basic needs. Government must attempt to do this (Think about Katrina)

  37. Disadvantages of market Economies • High degree of uncertainty: people lose their jobs and businesses fail

  38. Disadvantages of market Economies • Greed based system puts profits before people (think about loss of jobs here. What caused it?)

  39. What kind of economy do the U.S., Canada and the U.K. really have? • Are they truly Free market economies? • Does the government regulate businesses? • Does the government control any businesses?

  40. How do market economies answer the basic economic questions? • 1. What to produce? Directed by the consumers.

  41. How do market economies answer the basic economic questions? • 2. How to produce? Companies decide cheapest and most efficient means of production.

  42. How do market economies answer the basic economic questions? • 3 For whom to produce? The consumer that has the ability and money to afford the companies product.

  43. Mixed Economy • An economy is considered a mixed economy when there are characteristics of more than one economy evident. • For example, the United States is a mixed economy because there are privately owned businesses that operate on their own like a market system but they are regulated by the government also.

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