Economic Systems and Their Role

1. Economic Systems and Their Role

2. Human Wants & Needs Needs... are necessities for life such as food, shelter, and clothing. Wants... are things that people desire, but do not need to survive. Both needs and wants are unlimited because people tend to want more and more.

3. Scarcity... • is the basic economic problem facing all societies. • exists because people want more than their • society is able to produce for them. • forces all societies to make decisions about how • resources will be used for its citizens. • Economic systems exist to manage scarcity.

4. Economic Resources also know as Factors of Production • LAND (Natural Resources) • * useful materials in the natural environment • * renewable resources can be replaced (forests) • * non-renewable cannot be replaced once used up (Oil) • LABOR (Human Resources) • * human effort going in to producing a good or service • * physical work, mental effort, and management • CAPITAL (money and equipment used to produce)

5. 4 Economic Questions Each type of Economic System answers these questions in a different way. #1 “What goods and services should be produced?” #2 “How should these goods and services be produced?” #3 “For Whom should the goods and services produced?” #4 “Who owns the factors of production to produce the goods?”

6. 4 Economic Systems • Traditional System… economic decisions are based • on past practices (wisdom of ancestors)(Africa/Aboriginals) • Market System… economic decisions are based on • the actions of individual buyers and sellers. (USA) • Centrally Planned System… economic decisions are • made by the government almost completely. (USSR) • Mixed System… economic decisions are based on • both individual and government actions. (CANADA)

7. The Three Major Economic Systems Planned Economy An economic system that stresses collectivism and the coordination of resources to serve the goals of society. Economic decisions are almost totally made by the government. Market Economy An economic system that stresses the ideas of individualism and self-interest. Economic decisions are based on the actions of consumers and producers Mixed Economy An economic system that balances the ideas of self-interest and individualism with collectivism and planning of the economy.

8. Market Economy Planned Economy Mixed Economy North Korea USA Canada • Planned Economy • - Resources owned by the government • - Government decides what to produce and how to use resources • - Consumer has little influence on economic decision making • No private ownership of businesses or property • Also called Command Systems or Centrally Planned Systems. Mixed Economy - Some resources publically owned and some are privately owned - Both government and individuals make economic decisions - Government may own some businesses and property - Individuals can own businesses and property • Market Economy • - Resources privately owned • - Businesses privately owned • - Property privately owned • - Consumers decided what is to be produced • No government involvement • Also called Laissez-faire System, Free Market System, or Price System

9. Planned Economy Emphasis on collectivism and group control Emphasis on cooperation Emphasis on equality Economy is planned from the top down meaning that a planned economy is centralized Decisions are made by a small group in control of the means of production

10. Centralization The power and authority of a government is concentrated at the center or the top. The person or eliteat the top make targets for all sectors of the economy (industry/farming…). These targets are then passed downto the next level and so on and so on till it reaches the workers. Each level of gov’t is responsible to the level above them.

11. The Central Government Agriculture Planning Agency The red arrow represents the direction of power Provincial Agriculture Planning Committee Regional Agricultural Planning Committee Ranching Planning Committee Farming Planning Committee State Ranch State Ranch State Ranch State Farm State Farm State Farm

12. Market Economy Emphasis on individual freedom Profit is the goal of business Self-interest Supply and Demand Competition is essential and desirable The economy is not planned and is decentralized.

13. Decentralization No single decision-maker exists, but many separate decision-makers. Business owners, based on the concept of supply and demand, decide what is to be produced, distributed and consumed. Consumers decided the demand therefore they are also part of the decision-making

14. Market and Planned Market Economies and Planned Economies are also often referred to as private (Market) and public(Planned) enterprise systems.

15. Mixed Economy A mix between capitalism(making money) and socialism(taking care of people) Existence of a market system Government exists for the people Existence of social programs(programs that help individual or groups of people) Some large companies may be owned by the government Majority of businesses privately owned Existence of government intervention in peoples lives socially and economically

16. Privately Owned and Publically Owned It is important to understand the difference between a publically owned business and a privately owned business. A publically owned business is one that is owned by the government. A good example in town/city are the public libraries and transit systems. The profits from these businesses go to the city government. A privately owned business is one that is owned by an individual. A good example is Theodore’s Den. All the profits from the store go the owner.

17. Private Enterprise System A private enterprise system is a system where individuals, without government interference, decide what is to be produced and how much is to be produced based on the concept of supply and demand. Private enterprise systems stress profit, competition, laissez-faire, self-interest, private ownership of property, businesses and resources.

18. Public Enterprise System - A public enterprise system stresses a plan with heavy government involvement and interference when answering what is to be produced, how much and when. A public enterprise system stresses collectivism, cooperation, equality, and stability.

19. The Public Good and Cooperation vs.The Public Good and Individualism Some individuals believe that they must set aside their differences and individual interests to do what is best for society; that is the public good and cooperation. Some people believe that if individuals do what is best for them then it will benefit all of society; that is the public good and individualism.