Download
1 / 21
210 likes | 228 Views
Economic Systems. Today’s Objective: To be able to differentiate between the three economic systems and their characteristics. Types of Economic Systems. Economic system: How society uses resources to satisfy people’s wants Three basic systems: Traditional Command Market economies.
E N D
Economic Systems Today’s Objective: To be able to differentiate between the three economic systems and their characteristics.
Types of Economic Systems • Economic system: • How society uses resources to satisfy people’s wants • Three basic systems: • Traditional • Command • Market economies
Economic Systems • Read through the economic systems sheet • With a partner list 3 examples of elements of each type of economic system that we find in the US economy • Then list the pros and cons of each system
Types of Economic Systems • Traditional Economy • centers on families, clans, or tribes • decisions are based on customs and beliefs • Good of the group always comes before individual desires
Characteristics of Traditional Economies • Advantages and Disadvantages • Advantages: little disagreement over goals, roles • methods of production, distribution determined by custom • Disadvantages: as result of resistance to change, less productive • do not use new methods; people not in jobs they are best suited for • low productivity results in low standard of living
Types of Economic Systems cont. • Command Economy • (centrally planned economy) government makes economic decisions • determines what to produce; how to produce; who gets products • determines who is employed, work hours, pay scales • Wants of individual consumers rarely considered • Government owns means of production: resources and factories
Command Economies Today • No pure command economies today • Some economies still have mostly command elements
Command Economies Today • North Korea • Communist North Korea used resources for military, not necessities • built large army; nuclear weapons program • In 1990s and early 2000s, millions died of hunger, malnutrition • In 1990s, production decreased and economy shrank • Since 2003, some market activity allowed
Command Economies Today • Impact of Command Economies • In theory, command systems fair to everyone; In practice, many disadvantages • central planners do not understand local conditions • workers have little motivation to be productive or conserve resources • artificially low prices lead to shortages • people sacrificed to carry out centrally planned policies
Types of Economic Systems cont. • Market Economy • driven by choices of consumers and producers • consumers spend money, go into business, sell their labor as they wish • producers decide how to use their resources to make the most money • Consumers, producers benefit each other when they act in self-interest
Fundamentals of a Market Economy • 1: Private Property and Markets • 2:Limited Government Involvement • Laissez faire—government should not interfere in economy • Capitalism—system having private ownership of factors of production • says producers will create products consumers demand • Actual market economies all have some government involvement
Fundamentals of a Market Economy • 3: Voluntary Exchange in Markets • Voluntary exchange—traders believe they get more than they give up • 4: Competition and Consumer Sovereignty • Consumer sovereignty—buyers choose products, control what is produced • Competition controls self-interested behavior • sellers offer low price or high value to please consumers, make profit
Fundamentals of a Market Economy • 5: Specialization and Markets • Specialization—people concentrate their efforts in the activities they do best • encourages efficient use of resources • leads to higher-quality, lower-priced products
Impact of Market Economies • Advantages • Individuals free to make economic choices, pursue own work interests • Less government control means political freedom • Locally made decisions mean better use of resources, productivity • Profit motive ensures resources used efficiently, rewards hard work • resulting competition leads to higher-quality, more diverse products
Impact of Market Economies • Disadvantages • Pure market economy has no way to provide public goods and services • Does not give security to sick or aged • During U.S. industrial boom, business owners rich, workers low pay • Businesses did not address problems caused by industrialization • Industrialized societies adopt some government control of economy
Today’s Mixed Economies • Types of Mixed Economies • U.S. basically has market system • European countries greater mix of market and command elements • France—government controls some industries; provides social services • Sweden—state owns part of all companies; lifelong benefits, high taxes • Namibia—traditional; state supports market, foreign investment
Campus Parking Options • Leave things as they have been • First-come, first-served • Markets and a price system • Democracy • Random choice
Traditional, Command, Market, Mixed? • An economic system heavily influenced by habits, customs, and religious beliefs. • Government directly influences and vastly controls business practices due to ownership of natural and capital resources. • Privately owned factors of production (i.e., factories and machines). • Prices are influenced by supply and demand. • An economic system that combines elements of all the other basic systems. • Characterized by very low unemployment rate. • Considered synonymous with a capitalistic economy. • Individual freedom is limited (roles of individuals are static from generation to generation).
Dreaded Disease • Read through the dreaded disease scenario • With a partner answer the questions • Keep in mind what we’ve discussed about economic systems and opportunity cost
Dreaded Disease • What would be the “market” solution to the problem? • Benefits? • Opportunity cost? • What would be the command solution to this problem? • Benefits? • Opportunity cost?
