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Economic Systems

Explore the different economic systems - traditional, command, market, and mixed - and learn how they attempt to answer the three major production questions. Understand the strengths, weaknesses, and roles of government in each system.

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Economic Systems

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  1. Economic Systems

  2. Scarcity Means There Is Not Enough For Everyone Government must step in to help allocate (distribute)resources

  3. The 3 Major Production Questions • What to produce? • How to produce? • For whom to produce? We will classify economic systems into categories, based on how each of them attempts to answer these three questions.

  4. Traditional Economy • The answers to the three major production questions are dictated by ritual, habit, or custom.

  5. INUIT

  6. Where might you find a Traditional Economy? Examples of Traditional Economies: • Inuit tribe • Some parts of South America • Some parts of Africa • Aboriginal tribes of Australia • Some island societies • All are remote

  7. Traditional Economies Disadvantages? • Less growth/wealth • Less choice/variety • Lack of motivation • Uncertainty • Resource Curse Advantages? • Simple • Defined roles • Strong community • Self-sufficient • Specialization

  8. Command Economy • The answers to the three major production questions are given by some strong central authority (i.e. the government) • What is the “–ism” that comes to mind? • Communism – an economic system in which all factors of production are the property of the state. • Examples of Command Economies?

  9. Examples of Command Economies • Cuba - ??

  10. Examples of Command Economies • North Korea

  11. Command Economies Weaknesses • Lack of incentive • …to work hard • …to innovate • Low quality goods • Less variety • Corruption • Difficult to plan successfully Strengths • Able to plan • More equality(??) • Safety net • Can adjust quickly

  12. Market Economy • Businesses and individuals act in their own best interest to answer the three major production questions. • What is the “–ism” that comes to mind? • Capitalism – an economic system in which individuals and businesses compete, with a minimum of government interference • Based on this definition, is the United States a “capitalist” economy? • “Laissez-Faire” – hands off

  13. Market Economies Weaknesses • Unequal • Consolidation of wealth/power • Doesn’t provide for everyone • No safety net Strengths • Economic freedom • Efficiency • Strong incentives • …to work hard • …to innovate • High quality goods • More variety

  14. Mixed Economies • Mixed-Market • Socialism • Economies in Transition Kinda, but not really

  15. Total Economic Freedom Little Economic Freedom Capitalism Communism Socialism Mixed-Market Total Government Control No Government Control

  16. 2017 Index of Economic Freedom:

  17. 2009 Index of Economic Freedom: The Top 10 http://www.heritage.org/Index/

  18. Bottom 8

  19. Role Players in the Mixed-Market Economy • Consumers • Producers • Government – What 5 roles does the government play in our economy? • Consumer • Producer • Protector • Regulator • Provider

  20. 7 Economic & Social Goals of Mixed-Market Capitalism in the U.S. • Economic Freedom • Economic Equality • Economic Security • Economic Growth • Economic Efficiency • Price Stability • inflation and deflation • Full Employment • Does this mean everyone has a job? • No. There is a Natural Rate of Unemployment …of opportunity**

  21. Characteristics of Free Enterprise Capitalism • Economic Freedom • Voluntary Exchange – who has more power, producers or consumers? • Consumer Sovereignty: The consumer drives the market – DOLLAR VOTES • “The customer is always right!” • Private Property Rights • The Tragedy of the Commons – solutions? • Profit Motive/Self-interest • Competition • Markets and Prices • Specialization/Division of Labor

  22. Communism Capitalism vs.

  23. Communism Capitalism vs.

  24. “From each according to his ability, to each according to his needs!” • Karl Marx • Critique of the Gotha Programme, 1875

  25. Communism 200 words - Communism: How/Why does it rise? How/Why does it fail? How could it succeed?

  26. Economic Freedom Economic Equality Cooperation / Collectivization Competition Supply & Demand Government Planning Public Property Private Property Patriotism: The Good of Community Profit Motive

  27. Why Doesn’t It Work? • Incentive Problem • Average Test Scores Example • Soviet Tanks • Coordination Problem • 30 kids in classroom vs. 400 kids in auditorium • In one word, why doesn’t it work? GREED

  28. “As for me, I am not a Marxist.” Karl Marx

  29. When CAN It Work? Opt In Small Groups

  30. Unit 2 Review Guide – Topic List • Three Production Questions • Traditional Economies • Strengths • Weaknesses • Market Economies • Strengths • Weaknesses • Command Economies • Strengths • Weaknesses • Roles of Government in Mixed Market • Goals of Mixed Market Capitalism • Voluntary Exchange • Private Property Rights • Tragedy of the Commons • Communism • Rise/Fall • When can it work? • Relevant Textbook Sections: • Chapter 2

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