Economic Systems

1. Economic Systems Unit One, Lesson Five Economics

2. Economic Systems • An economic system is an organized way of providing for the wants and needs of the society’s people. • It is how societies choose to answer our three basic questions. (What, How, and For Whom?)

3. Traditional Economies • In traditional economies, the allocation of scarce resources, and nearly all other economic activity, stems from ritual, habit, or custom. • Usually, habit and custom also dictate most social behavior, and individuals are not free to make decisions on what they want or would like to have.

4. Traditional Economies • Can anyone think of any traditional economies that exist today? • Are there any instances of traditional economies in our society today?

5. Aboriginal People in Australia

6. Traditional Economies • Advantages --Everyone knows their role—WHAT questions answered for them --Everyone knows HOW to produce (same as their parents did before them) --FOR WHOM questions answered by customs and traditions

7. Traditional Economies • Disadvantages: --Discourages new ideas (and therefore new economic growth) --Lack of progress leads to lower standard of living

8. Command Economies • A command economy is one in which a central authority makes most of the WHAT , HOW, and FOR WHOM decisions. • Economic decisions are made by the government: the people have little, if any, influence over how the basic economic questions are answered.

9. Command Society

10. Command Economies • Can anyone think of some examples of command economies that exist today or have existed in history? • Are there any instances where our society has command economy traits?

11. Fidel Castro-dictator in Cuba

12. Command Economies • Advantages: --Can change direction in a relatively short period of time --There is little uncertainty about one’s role in the society --Government provides social reforms/programs for little to no cost to the public

13. Command Economies • Disadvantages: --Not designed to meet the wants of consumers --System does not give people incentive to work hard --Large decision-making bureaucracy --No flexibility --Little to no rewards for individual incentives

14. Market Economies • In a market economy people and firms act in their own best interest to answer the WHAT, HOW, and FOR WHOM questions. • A market is any mechanism that allows buyers and sellers to find each other and trade their goods and services. • People’s decisions influence the WHAT, HOW, and FOR WHOM.

15. Market Economies • Can anyone think of any examples of market economy today or in history? • Any examples of a market economy in our own society?

16. Market Economies

17. Market Economies

18. Market Economies • Advantages: --Can adjust to change over time --High degree of individual freedom --Relatively small degree of government interference --Decision making is decentralized (not given to the central government) --Variety of goods and services available to consumers --High degree of customer satisfaction and standard of living

19. Market Economies • Disadvantages: --Doesn’t provide basic needs for everyone in the society (poor, elderly, sick) --Doesn’t provide public services (system of justice, national defense, health care) --High degree of uncertainty --Must be reasonably competitive, resources must be reasonably free to move from one activity to another, and consumers need access to adequate info to make wise decisions or economy can fail very easily

20. Mixed Economy • An economy in which there are some elements of a traditional economy, some elements of a command economy, and some elements of a market economy • What the U.S. is said to have