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Economic Systems…

Economic Systems…. What kind do you live in?. Economic systems. Systems that answer the three basic economic questions of what, how, and for whom Incentives: An incentive is what motivates people.

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Economic Systems…

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  1. Economic Systems… What kind do you live in?

  2. Economic systems • Systems that answer the three basic economic questions of what, how, and for whom • Incentives: • An incentive is what motivates people. • Ex. A dog gets a treat to pee outside. The treat is the incentive. It motivates the dog to pee outside. The dog has a reason to pee outside. • An incentive encourages you!

  3. Basic systemsThey do not exists anymore • Traditional System • A native American tribe is an example • Custom and tradition answer the 3 Q • a current day example: a recipe passed down from your grandmother to your mom and now to you

  4. Basic Economic systemsDo not exists anymore • Command System (Pure Centrally Planned) • Feudal system is a past example…..Kings, lords, serfs • The “government” answers the three questions. The people do not have a say • The problem is that the people have no incentives.

  5. Basic Economic systemsNo longer present today • Pure Market System • A market systems has NO government involvement in the market • The people answer the three basic questions • The incentive to work hard is to make more money….maybe even be rich! • Adam Smith wrote about how wonderful the market system is in the “Wealth of Nations”. He says the incentives it provides motives people and the invisible hand guides the market.

  6. Mixed Systems: Modern day • Mixed systems provide elements of different Economic systems mixed together. • These types of systems are the systems we see in the world today. • All economies in the world today are mixed. • They are: Communism, Socialism, and Capitalism

  7. Communism • Mostly Command with a touch of market. • The three questions are answered by the Government. • The government controls where you can live, what you will do for work, and how much money you will make. • You are taxed at a very high rate • Government provides public healthcare, ed, and retirement • No incentives are present in this system. • Ex. Cuba

  8. Socialism • Created at the end of WWII. It is a 50/50 mix of Communism and Capitalism • The three basic Econ Q are answered by the people and the government together. • It does provide incentives, but not as many as Capitalism • It does provide Public services like healthcare, ed, and retirement. Private options available for an extra cost. • Taxed at a rate of about 50%. • Ex. France

  9. Capitalism • US is an example • It is mostly market b/c the government has a limited role in the economy • There are many incentives to work hard • The people answer the three basic Econ Q • The system is considered mixed b/c the government is present, not making it 100% market. • The people must provide their own health care, education after HS, and retirement. • Taxed at a rate of about 30%

  10. Goals of Capitalism • In the US, Capitalism is also called “Free Enterprise” • Goals: • Economic Freedom • Economic Equity • Economic stability (with prices and jobs) • Economic Growth (standard of living) • Economic Security • Economic efficiency

  11. Transitional Economy • Moving from one type of Economic system to another. It is a long process and cannot happen over night.

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