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Lesson 1 Presentation

This lesson presentation compares and contrasts the three main types of economic systems - traditional, command, and market economies. It focuses on the basis elements of production and distribution of goods and services, listing the advantages and disadvantages of each system.

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Lesson 1 Presentation

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  1. Lesson 1 Presentation Economic Systems

  2. Main Idea • Compare and contrast the three main types of economic systems, focusing on the basis elements of production and distribution of goods and services. Free Template from www.brainybetty.com

  3. I will be able to: • Compare and contrast the characteristics of traditional, command, and market economies. • List the advantages and disadvantages of traditional, command, and market economies. Free Template from www.brainybetty.com

  4. Characteristics of Free Enterprise • A free enterprise economy has both capitalism and free markets. • Characteristics of a capitalistic free enterprise economy include economic freedom, voluntary exchange, private property rights, the profit motive, and competition. Free Template from www.brainybetty.com

  5. Characteristics of Free Enterprise • Economic freedom allows you to choose your occupation, employer, and job location. • Capitalism allows voluntary exchange between buyers and sellers. Free Template from www.brainybetty.com

  6. Characteristics of Free Enterprise • Private property rights allow people to own and control possessions, which gives them the incentive to work, save, and invest. • Individual freedom is closely related to economic freedom. Free Template from www.brainybetty.com

  7. Benefits of Free Enterprise • Individual freedom is closely related to economic freedom. • Market economies produce a huge variety of goods. • Market economies adjust daily, mainly through the ever-changing prices of goods and services. Free Template from www.brainybetty.com

  8. Benefits of Free Enterprise • Intense competition in a free market capitalist economy promotes economic progress in the form of a continuing supply of newer and better products. • When more and better products are produced in a free market capitalistic system, wealth is created. Free Template from www.brainybetty.com

  9. Disadvantages of Free Enterprise • Periods of uneven economic growth are one of the disadvantages of free enterprise capitalism. • In free enterprise capitalism, the gaps between rich and poor citizens seem to increase. Free Template from www.brainybetty.com

  10. Disadvantages of Free Enterprise • In free enterprise economies, suppliers tend to combine to avoid competition, which results in fewer participants on the supply side of the market. • Businesses such as corporations have most of the same rights as individuals, but they also have many responsibilities as a result of government-imposed regulations. Free Template from www.brainybetty.com

  11. TE Characteristics • The use of scarce resources – and nearly all other economic activity – stems from ritual, habit, or custom • Habit and custom also dictate social behavior • Individuals are generally not free to make decisions on the basis of what they want or would like to have. • Their roles are defined by the customs of their elders and ancestors. Free Template from www.brainybetty.com

  12. TE Examples (Inuit) • This rewards the skill of the hunter and also ensures that everyone in the TE benefits. Free Template from www.brainybetty.com

  13. TE Examples (Inuit) • An Inuit hunter gets the choice of the first cuts from a successful hunt & then others in the community get to share in the kill as well. Free Template from www.brainybetty.com

  14. TE Advantages • The answer of the FOR WHOM question is determined by the customs and traditions of the society • Tradition dictates how people live their lives. Free Template from www.brainybetty.com

  15. TE Disadvantages • It tends to discourage new ideas and new ways of doing things • The strict roles in a TE have the effect of punishing people who act differently or break rules • The lack of progress due to new ideas & new ways of doing things leads to economic stagnation and a lower level standard of living than in other economic systems. Free Template from www.brainybetty.com

  16. TE Advantages • Everyone knows which role to play. • Little uncertainty exists over WHAT to produce • Little uncertainty exists over HOW to produce • If born into a family of hunter – you hunt • If born into a family of farmers – you farm • you did the same as your parents Free Template from www.brainybetty.com

  17. Economies Based On Tradition • In a traditional economy, resource use and social behavior are dictated by ritual, habit, or custom. • Examples of traditional economies include the central African Mbuti, the Australian Aborigines, and the Inuit of Northern Canada. Free Template from www.brainybetty.com

  18. Economies Based On Tradition • The main advantage of a traditional economy is that the answers to WHAT, HOW, and FOR WHOM to produce are determined by customs and tradition. • The main disadvantage of a traditional economy is that it tends to discourage new ideas and new ways of doing things. Free Template from www.brainybetty.com

  19. Economies Based On Command (CE) • A central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce. • Can be headed by a king, dictator, president, tribal leader or anyone who make the major economic (E) decisions • A more modern /liberal version of a CE is socialism • An economic & political system in which govt. owns some of the FOP • The govt. plays a major role in answering most of the major WHAT, HOW, & FOR WHOM questions Free Template from www.brainybetty.com

  20. Characteristics(CE) • The governing authority makes all the major economic question • If houses or apartments are to be built • The best way to build them • Who will receive/live in them • Sometimes the central authority is generous w/the country’s wealth and spreads it around for the benefit of all • Mostly much of the country’s wealth is plundered and kept for the exclusive benefit of its leaders Free Template from www.brainybetty.com

  21. Characteristics(CE) • Most CE severely limit private property rights • People not allowed to own their own houses, businesses, & other productive resources • The govt. owns most of the resources in the economy • Socialist economies (SE) share many of the same characteristics of a pure CE Free Template from www.brainybetty.com

  22. Characteristics(CE) • Only fewer resources are owned or controlled by the central authority • Under socialism – the stated objective of the govt. is to serve the needs of its people • Not just enhance the welfare of its leaders. • Most SE tend to be larger than economies (E) directed by the pure tradition which makes it harder for the govt. to own & direct everything. Free Template from www.brainybetty.com

  23. Examples (CE) • Are limited to a handful of dictatorships & small tribal economies around the world. • North Korea – the last leading example • Everything is either owned or controlled by the govt. • More important are the small and shrinking number of countries based on socialism • Cuba, Vietnam, Venezuela • Soviet Union collapsed in 1991 Free Template from www.brainybetty.com

  24. Examples (CE) • Denmark, Sweden, & Norway – no longer described as socialist • Have completed a transition to capitalism • They still have a few socialist features – free universal education & health services • More important are the small and shrinking number of countries based on socialism • Cuba, Vietnam, Venezuela • Soviet Union collapsed in 1991 Free Template from www.brainybetty.com

  25. Advantages (CE) • It can change directions drastically • Former Soviet Union went from a rural agricultural society in 1910 to an industrialized nation in a few decades emphasizing the growth of heavy industry • Shifting resources on a massive scale from farming & consumer goods to industrial production. • It allows more citizens to receive some G&S that they would otherwise not be able to afford Free Template from www.brainybetty.com

  26. Advantages (CE) • Cubans have access to universal health care • Venezuela - President Chavez tried to provide basic food, commodities, and electricity below markets rates. • North Korea & former Soviet Union - public services were available to everyone at little or no cost • Health • Education • Transportation Free Template from www.brainybetty.com

  27. Disadvantages (CE) • 1. The leaders of CE usually provide for themselves @ the expense of the general population • High govt. officials have the nice cars, houses, & plenty of food while the average citizen may be forced to go w/o. • 2. The loss of the individual freedom to choose • The doctors in Cuba are required to live in the same buildings where they provide services • continued Free Template from www.brainybetty.com

  28. Disadvantages (CE) • Free state-controlled media – programing is usually limited to the propaganda control the govt. wants people to see/hear • Not open to what people want to see or hear • 3. The production of low quality goods • Workers given quotas to stimulate production • Workers focus on quotas & not quality Free Template from www.brainybetty.com

  29. Disadvantages (CE) • 4. Requires a large decision-making bureaucracy • Slows production & raised the cost of production • 5. Rewards for individual initiatives are rare in both command and socialist economies • All wages are uniform regardless of occupation • Doctors and factory workers get paid about the same Free Template from www.brainybetty.com

  30. Disadvantages (CE) • Almost all countries are connected by foreign trade • So it is possible for a problem in one part of the world to be quickly transmitted to another • CE tend to stay relatively small because they have such a hard time making all the decisions necessary for growth and change to take place. Free Template from www.brainybetty.com

  31. Disadvantages (CE) • Factory workers paid the same regardless of production • E w/relatively uniform wages for different occupations & effort don’t provide much incentive for people to learn or work. • 6. A planning bureaucracy lacks the flexibility to deal with major problems, or even the day-to-day ones. • CE tend to lurch from one crisis to the next or collapse as did the former Soviet Union Free Template from www.brainybetty.com

  32. Disadvantages (CE) • G&S are never free, even if the country has an E directed by socialism • TINSTAAFL still applies to SE • Denmark, Sweden, & Norway→ • Free education & national health care funded at high domestic tax rates • This tax rate is higher than in the US. Free Template from www.brainybetty.com

  33. Economies Based On Command • In a command economy, a central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce. • Socialism is a modern, somewhat more liberal version of a command economy. Free Template from www.brainybetty.com

  34. Economies Based on Command • The main advantages of a command economy are that it can change direction quickly, and it allows many citizens to receive goods and services they otherwise could not afford. Free Template from www.brainybetty.com

  35. Economies Based on Command • Disadvantages include the loss of individual freedom to choose, the production of low-quality goods, a large decision-making bureaucracy, and lack of individual initiative. Free Template from www.brainybetty.com

  36. Economies Based on Market (ME) • People make decisions in their own best interest • Allows buyers & sellers to come together for the purpose of trade • Market – is an arrangement that allows buyers & sellers to come together to exchange G&S • A physical location, website Free Template from www.brainybetty.com

  37. Characteristics (ME) • A great deal of freedom • People can spend their money on the products they want most • This tells producers which products people want most – WHAT to produce Free Template from www.brainybetty.com

  38. Characteristics (ME) • Businesses are free to find the production methods – HOW to produce • Income that consumers earn & spend in the market determines – FOR WHOM to produce Free Template from www.brainybetty.com

  39. Characteristics (ME) • The private ownership of resources. • ME is often described as being based on capitalism – an economic system where private citizens own & use the FOP for their own profit or gains • Income that consumers earn & spend in the market determines – FOR WHOM to produce Free Template from www.brainybetty.com

  40. Characteristics (ME) • Capitalism – draws attention to the private ownership of resources • ME – focuses on where G&S are exchanged • The two terms focus on different features of the same ES Free Template from www.brainybetty.com

  41. Examples (ME) • Many of the most prosperous E in the world are based markets and capitalism • Australia • Canada • Great Britain • Japan • Singapore • South Korea • parts of Western Europe • United States Free Template from www.brainybetty.com

  42. Examples (ME) • While difference occur – they share the common elements of market and the private ownership of productive resources to seek profits Free Template from www.brainybetty.com

  43. Advantages (ME) • 1. High degree of individual freedom • People are free to: • spend their money on G&S they choose • decide where & when they want to work • invest further in their education & training. • Producers are free to decide: • What they want to produce • Who they want to hire • Which input they want to use • The way they want to produce Free Template from www.brainybetty.com

  44. Making ConnectionsMarket Advantages: • What economic decisions have you made this past week? • What to buy for lunch • Which clothing item to buy • Whether to buy a music single by one artist rather than another. Free Template from www.brainybetty.com

  45. Advantages (ME) • 2. It adjusts gradually to change over time • The decisions that individuals make for them selves – not decisions made by govt. – helps the E adjust to change • 3. Relatively small degree of govt. interference, the govt. tries to stay out of the way of buyers & sellers • Except in justice and national defense Free Template from www.brainybetty.com

  46. Advantages (ME) • 4. Decision making is decentralized • Individual economic decisions are made daily • The decisions direct scarce resources into the use they favor most • Everyone has a voice in the way the economy runs • 5. ME is the variety of G&S that are produced • If the product can be imagined, it is likely to be produced in hopes that people will buy it. Free Template from www.brainybetty.com

  47. Advantages (ME) • 6. The high degree of consumer satisfaction • The choice of one group does not affect the choices of other groups • 7. The goods are usually privately owned • Privately owned goods last longer than goods owned by others • The owner will take better care of his/her property Free Template from www.brainybetty.com

  48. Advantages (ME) • Makes sense to have an ES that takes care of property. Free Template from www.brainybetty.com

  49. Disadvantages (ME) • Does not provide for everyone • The too young, too old, the sick ones who can’t care for themselves • Would have difficulty surviving in a pure market economy w/o assistance from family, govt. or charitable groups • Does not provide enough of G&S • Roads • Libraries • University education • Health care • Private producers concentrate on providing products they can sell for a profit Free Template from www.brainybetty.com

  50. Disadvantages (ME) • Has a high degree of uncertainty • Workers might worry that company might move to another country in search of lower level costs. • Employers may worry that someone else will produce better or less expensive products – taking customers Free Template from www.brainybetty.com

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