Economic Systems

1. Economic Systems

2. What is Economics? • It is the study of how people meet their basic needs • Each society must answer three fundamental economic questions: • What should be produced? • How should it be produced? • Who gets what is produced? • The way a society answers these questions determines its economic system.

3. Traditional Economy Custom and tradition determine what should be produced, how it should be produced, and for whom.

4. Subsistence Agriculture • Farming enough to feed yourself and family • Almost everything grown is used for family needs – not to sell. • Cottage Industries • Products made to give families extra income when little work can be done on farm. • Weaving cloth • Making clothes • Making furniture

5. Most economies have been traditional • Can still be found in many rural and non industrial areas. • Bushmen of the Kalahari Desert, S. Africa • Berber tribesmen of Algeria • Villages in S. Asia

6. Free Enterprise Economy“Capitalism” • People own their own goods and property. • Profit can be made by business owners • Profit is what is left over after the costs of running the business are paid • The three basic questions are answered by the consumers and producers

7. Prices are determined by supply and demand • Supply – how much of a good producers are willing to make and sell • Demand - how much of a good consumers are willing to buy • When supply is high (low demand) prices are low (there is more product) • When demand is high (low supply) prices are high (there is not enough product)

8. Role of Government – Free Enterprise • Limited interference by government • Government is an umpire • Enforces common rules • Maintains monetary system • Provide for defense of nation • Protect peoples right to own property

9. Examples of Free Enterprise USA Great Britain France Chile Canada Japan Germany Singapore

10. Communist Economy Developed in 1800’s by Karl Marx (1818-1883)

11. Role of Government - Communism All major decisions on production, distribution and the use of resources are made by the government No private property – National ownership of all land, factories, farms, and major resources The goal – To achieve a classless society – equality of all workers

12. Examples of Communism North Korea Cuba Vietnam China? – China has kept its communist political system but changing its economic system

13. Socialist Economy • Most important businesses are owned by the government • Nations railroads, airlines, hospitals, banks • Began in the 1800’s as a political movement because of the injustice and unfair treatment of workers in Europe

14. Role of Government – Socialism Government should use power to end poverty by controlling major national resources and provide public services Many of the decisions about production, distribution and use of resources made by government Socialism seeks to have a fairer distribution of income among all members of society

15. Examples of Socialism Sweden Israel