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Economic Systems & Decision Making

2. C H A P T E R. Economic Systems & Decision Making. ECONOMIC SYSTEMS. THE MARKET SYSTEM Pure Capitalism Laissez-faire “Let it be” THE COMMAND SYSTEM Socialism Communism. ECONOMIC SYSTEMS. TRADITIONAL SYSTEM Based on habits and/or customs Tribal, indigenous MIXED ECONOMY

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Economic Systems & Decision Making

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  1. 2 C H A P T E R Economic Systems & Decision Making

  2. ECONOMIC SYSTEMS • THE MARKET SYSTEM • Pure Capitalism • Laissez-faire • “Let it be” • THE COMMAND SYSTEM • Socialism • Communism

  3. ECONOMIC SYSTEMS TRADITIONAL SYSTEM • Based on habits and/or customs • Tribal, indigenous MIXED ECONOMY • Has elements of two or more systems.

  4. ECONOMIC GOALS • Economic Freedom • Economic Efficiency • Economic Equity • Economic Security • Full Employment • Price-Level Stability • Economic Growth Identify the T R A D E O F F S COMPLIMENTS

  5. The Market System

  6. FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY SELF- INTEREST COMPETITION CAPITALIST IDEOLOGY

  7. FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY SELF- INTEREST COMPETITION ACTIVE, BUT LIMITED, GOVERNMENT MARKETS & PRICES CAPITALIST IDEOLOGY

  8. 1 Hong Kong 3 Ireland 5 United States 20 Belgium 31 Spain 48 France 101 Brazil 126 China 134 Russia 148 Venezuela 156 Cuba 157 North Korea GLOBAL PERSPECTIVE Index of Economic Freedom, Selected Nations Rankings among 157 nations, 2008 FREE MOSTLYFREE MOSTLYUNFREE REPRESSED

  9. THE MARKET SYSTEM AT WORK The Three Fundamental Questions... What will be produced?

  10. THE MARKET SYSTEM AT WORK The Three Fundamental Questions... What will be produced? How will the goods be produced?

  11. THE MARKET SYSTEM AT WORK The Three Fundamental Questions... What will be produced? How will the goods be produced? Who will get the goods and services?

  12. WHAT WILL BE PRODUCED? Those goods and services that make a profit. • Profit = Total Revenue – Total Cost

  13. HOW WILL THE GOODS AND SERVICES BE PRODUCED? • Least Cost Production • Maximizing output while minimizing cost.

  14. WHO WILL GET THE GOODS AND SERVICES? • The market determines the price. • Those willing to pay that price receive the goods and services. • Income is the key.

  15. THE CASE FOR THE MARKET SYSTEM • Efficiency • Incentives • Freedom

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