Warm – UpNovember 9, 2010 In a market economy, who makes the economic Decisions? Farmers Custom and habit Government planners Consumers and producers
Activator Kagan Walk- The teacher will pose a question and play some music. You will walk around the room and reflect on the answer. When the music stops you will high five the student closest to you and then share your answer. If both students agree, you will face to face. If you disagree you will stand back to back.
Standards/Elements • SS7E5 The student will analyze different economic systems a.Compare and contrast how traditional, command, and market economies answer the economic questions of (1) what to produce, (2) how to produce, and (3) for whom to produce. b.Explain how most countries have a mixed economy located on a continuum between pure market and pure command. Today I will express how various economic systems operate by using my learning style to share my knowledge with my teacher and classmates.
Essential Question How do traditional, market, and command economies answer the questions of what to produce, how to produce and for whom to produce?
All Economic Systems seek to answer the three basic economic questions • 1) What to produce? • 2) How to produce? • 3) For whom to produce?
Traditional Economies • Basic economic questions answered by what has been done in the past • Traditions are maintained • Ritual, Habit, and Custom
Traditional economies • Individual roles and choices are defined by the customs of elders and ancestors • These economies are usually based in societies of hunter/gatherers • Sharing is a big part of these economies
Examples of Traditional economies • Australian aborigines
How do Traditional economies answer the three basic questions? • 1) What to produce? Whatever ritual, habit or custom dictates • 2) How to produce? However ritual, habit or custom dictate • 3) For whom to produce? For whomever ritual, habit or custom dictate
Advantages of Traditional economy • There is little to no uncertainty • Everyone knows what role to play • Life is generally stable, predictable, and continuous
Disadvantages of Traditional economies • Tend to discourage new ideas and new ways of doing things • Lack of progress lowers standard of living
Command Economies • Basic economic questions answered by the government (central authority)
Examples of Command economies • Only one command economies left – North Korea • All others have mixed in market economy with their command structure (China)
How do Command economies answer the basic economic questions? • 1) What to produce? Whatever the government says to produce • 2) How to produce? However the government tells you to produce • 3) For whom to produce? For whomever the government tells you to produce (ideally the entire society)
Advantages of Command Economy • Because the government has total control over production and its factors, these economies can change rapidly. • Whatever is needed most will be produced. • There is no uncertainty (people are told when and how to work) • Free education, health care, and other public services
Disadvantages of Command economy • Economy designed to meet needs not wants • No incentive to work hard (people don’t often lose their jobs, so they do the bare minimum to get by) • Large bureaucracy means slow decision making, raises cost of production, lacks flexibility • No reward for initiative which slows progress
Market Economies • Basic economic questions answered by consumers • Dollars = Votes
Examples of Market economies • USA, Canada, UK, etc. etc.
Advantages of Market Economies • Adjusts to change based on consumer wants • High degree of individual freedom • Low levels of government interference • Because individuals (with money) make the decisions, everyone (with money) has a voice in the way the economy runs • Wide variety of available goods & services • Many choices = high degree of consumer satisfaction
Disadvantages of Market Economies • Poverty: only those with money can participate • Market does not provide for people’s basic needs. Governments must attempt to do this (think Katrina). • High degree of uncertainty people lose jobs, businesses fail • Greed based system puts profit before people
What is a Mixed Economy? • A mixed economy blends components of two or more of the following economic systems to varying degrees: traditional, market, and command