Comparing Economic Markets CE. 11b

1. Comparing Economic Markets CE. 11b Economics is the study of how things are made, bought,sold, and used. • The three basic questions of Economics are • What will be produced? • Who will produce it? • For whom will it be produced? Every country must develop an economic system to determine how to use its limited productive resources.

2. The key factor in determining the type of economy is the extent of government involvement.

3. TYPES OF ECONOMIES There are four types of economies that we will focus on. Traditional Economies Command Economies Market (or “free” market) Economies Mixed Economies * The type of economy a country uses is determined by the extent of government involvement in economic decision making. **What are the basic characteristics of these types of economies?

4. Traditional Economy • Economic decisions are based on custom and historical precedent. • People often perform the same type of work as their parents and grandparents, regardless of ability or potential.

5. Traditional Economy Farming in Burma (Southeast China)

6. COMMAND ECONOMY • Central ownership usually by the government of property and resources • Centrally planned economy • Lack of consumer choice This means… The government owns all means of production and distribution. (factories, farms, natural resources, transportation system, and stores). The government makes all economic decisions. (what products to make, how many to make, how and who will make them, and who will get them).

7. Command Economy

8. Free Market or “Market” Economy The word “market” refers to buying and selling. A market can be a physical place “This little piggy went to the market.” A market can also mean a demand by consumers for certain goods or services. “There is a tremendous market for video games.” In a free market individuals make economic decisions based on supply and demand. People are free to buy, sell and produce what they want. Individuals own the means of production. (business) Often called “capitalism” because people invest their own capital (money) in hopes of making a profit. (risk)

9. Characteristics of a Free Market Economy are • Private ownership of property and resources • Profit motive • Competition • Consumer Sovereignty • Individual Choice • Minimal government involvement in the economy Consumer Sovereignty means through their purchases, consumers determine what goods and services will be produced.

10. Free Market Economy

11. Market economies continued Free Enterprise is an important characteristic of capitalism. -freedom to own your own property, go into business for themselves, buy and sell to make a profit. - Businesses compete with each other Competition=Consumer Choice=Buy Best Quality at Lowest Price.

12. Comparing Free and Command Markets

13. Services not provided by a Free Market

14. Mixed Economy Pure forms of command and free market economies are rare In most countries, economic systems are a combination = Mixed Economy. In a mixed economy individual and the government share the decision making process. Most of the means of production are privately owned. Government guides and regulates businesses. Can’t cheat or abuse workers and consumers. Agencies regulate -pollution, minimum wage, safety Most common economic system today

15. Characteristics of a Mixed Economy • Individuals and business are owners and decision makers for the private sector or section. • Government as owner and decision maker for the public sector or section. • Government role is greater than in a free market economy and less than in a command economy. • Most economies today including the United States are mixed economies.

16. No country relies exclusively on markets to deal with the economic problem of SCARCITY.