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Intro to Business. Economic Systems. Three Economic Questions. What goods and services will be produced? What do we have? How will they be produced? Hand > machine > elsewhere Who gets the stuff?. 3 Economic Systems.

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intro to business

Intro to Business

Economic Systems

three economic questions
Three Economic Questions
  • What goods and services will be produced?
    • What do we have?
  • How will they be produced?
    • Hand > machine > elsewhere
  • Who gets the stuff?
3 economic systems
3 Economic Systems
  • Economic system (economy) – an organized way of providing for the wants and needs of people.

1). Command

2). Market

3). Traditional

command economies
Command Economies
  • Economic activity is planned out by the government, with people having little influence.
  • Examples:
    • Cuba
    • North Korea
    • Former Soviet Union
command economies pros
Command Economies - Pros
  • Allows an economy to change direction very quickly.
    • After Stalin’s first two Five Year Plans, Russia moved from a rural agricultural economy to an industrial economy.
command economies pros1
Command Economies - Pros
  • Little uncertainty as to who will do what.
  • No unemployment because the government gives everyone a job (whether it is needed or not).
    • Ayn Rand - Anthem
command economies cons
Command Economies - Cons
  • Not designed to meet the wants of consumers.
    • Stalin’s Five Year Plan directed resources away from both agriculture and consumer goods.
  • Provides strange incentives
    • Do just enough to meet quotas.
command economies more cons
Command Economies – More Cons
  • No rewards for individual performance.
    • Tetris
  • No flexibility to handle problems.
    • Great Depression disrupted the USSR’s First Five Year Plan
  • Requires a large decision making agency.
    • Stalin’s Five Year Plans governed all economic activity in Russia…that’s a lot of paperwork!
market economies
Market Economies
  • People and businesses act in their own best interests to answer the three basic economic questions.
market economies how they work
Market Economies – How they work
  • Lure of personal and financial gain leads consumers and businesses to interact in various markets.
  • Each person acts as they see fit in order to advance their own interests.
the first economist adam smith
The First Economist – Adam Smith
  • “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” – Wealth of Nations, 1776
market economies pros
Market Economies - Pros
  • Economy can adjust to change over time
    • Businesses can adapt to changing consumer tastes by creating new/different products.
  • High degree of individual freedom
    • Businesses and individuals are free to do what they want.
market economies more pros
Market Economies – More Pros
  • Small degree of government interference (Mixed Economy)
  • Economic decisions are made by all, not limited to government officials.
  • Seemingly unlimited variety of goods and services available to consumers.
market economies cons
Market Economies - Cons
  • Does not provide for the basic needs of everyone.
    • Elderly, disabled and other groups would be unable to survive in a market economy without governmental assistance.
market economies more cons
Does not provide certain services that people value.

National Defense & Education.

High degree of uncertainty

Tommy Boy

Jobs going overseas

Market Failures

Market Economies – More Cons
traditional economies
Traditional Economies
  • Economic activity is based on tradition with roles determined by previous generations.
  • Examples:
    • Medieval Europe
    • Various hunting tribes in Africa and northern Canada
traditional economies pros
Traditional Economies – Pros
  • Everyone knows what their role is.
  • Life is generally predictable and stable.
traditional economies cons
Traditional Economies - Cons
  • Discourages new ideas and new ways of doing things.
  • Lack of progress leads to a lower standard of living.
the us economic system
The US Economic System
  • Mixed Economy
  • Capitalism
  • Based on 4 important principles
    • Private Property
    • Freedom of choice
    • Profit
    • Competition
6 economic social goals
6 Economic Social Goals
  • Economic Freedom
  • Economic Equity
  • Economic Security
  • Price Stability
  • Economic Growth
  • Economic Efficiency
economic freedom
Economic Freedom
  • Individuals have freedom to choose their own occupations, employers, and spending habits.
  • Businesses have freedom to choose how and where to produce goods/services.
  • Are we meeting this goal?
economic equity
Economic Equity
  • People should receive equal pay for equal work.
  • People should receive adequate pay for the work they perform.
  • People should all have the same opportunities to get ahead.
  • Are we meeting this goal?
economic security
Economic Security
  • We should have protection from negative economic events such as layoffs and injuries.
    • Social Security – federal program that provides disability and retirement benefits.
    • Medicare
  • Everyone should have their basic needs met.
  • Are we meeting this goal?
price stability
Price Stability
  • We should have stable prices that protect against inflation.
    • Inflation – a rise in the general level of prices.
  • Are we meeting this goal?
economic growth
Economic Growth
  • Increasing the production of goods and services over time
  • Measuring by gross domestic product (GDP)
  • Constant Improvement
economic efficiency
Economic Efficiency
  • Insuring optimal utilization of scarce resources; prevention of waste of the nation’s resources; and getting the most out of available resources.
  • Max value for min. cost
when economic goals are not met
When economic goals are not met…

…People get mad!!!!!!!

bruce springsteen working on a dream
Bruce Springsteen – Working on a Dream

Homework: Listen to the song. As you listen, think and then write down his view about the goals of:

  • Economic Equity?
  • Economic Security?
  • Find a song that sings about economic hardship, write a short (1 page) paper identifying the song (and lyrics) and discussing how it applies to our country’s economic shortcomings.