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Explore the four types of economies (traditional, command, free market, mixed) and delve into the principles of capitalism. Learn about the role of government in economics and gain an understanding of where the world stands today. Connect the information to make sense of it all and expand your knowledge of economics.
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What you’ll be doing today… • Examining FOUR different kinds of economies and how they answer the 5 Questions of Economics (remember my song) • Examining the Principles of Capitalism (Free Market Economy) • The Role of Government in Economics • Where we are today in the world? • Learning MORE NEW LANGUAGE • Making connections and sense of this information
Making Connections… • Remember our conversation about SYSTEMS- the “isms”- this is where we dive in a little more • Resources are limited we make choices we evaluate trade offs/opp costs • Businesses have to look at the factors of production, the production process and make choices on how to provide goods and services to consumers • We as consumers make choices on those products • Now we put all this into big picture
Types of Economies Around the World • Remember societies have to make choices on how they can meets the NEEDS AND WANTS of the members of their community • Societies have to function under some sort of SYSTEM There are FOUR types we are going to look at • Traditional Economy • Command Economy • Free Market Economy • Mixed Economy
Traditional Economies • Def: Economic Questions answered by custom/traditions • Predominantly Agricultural • Developing or “3rd World” • Trade and barter oriented • Low Production and income per capita (per person) • Traditional Market in Ghana, Africa
Traditional Economies • Thinking Things through: • What role are the producers playing in this model? • What role does the consumer play? • Trade offs and Opportunity costs • Let me Help with you your thinking: • Producers “make” goods that are only available in their immediate area • Consumers have only limited options of products • Depend highly on trade to get “other” products
Command Economies • Def: Economic questions answered by the government • Very little economic choice • No private ownership • Communism • Old Soviet Union, old Communist China, Cuba and North Korea
Karl Marx • 19th century German economist • Author of “Communist Manifesto” and “ Das Kapital” • Workers should control economy and distribute goods and services to the people • Founder of revolutionary socialism and communism
Command Economies • Thinking Things through: • What role are the producers playing in this model? • What role does the consumer play? • Trade offs and Opportunity costs • Lets put thoughts on this screen: • Take 3 mins to talk this out with your Star Wars Partner- Jedis you talk first- empire you’ll report out
Communism Falls • Market reforms in China in the mid 1970s. • Fall of the Berlin Wall in 1989. • Collapse of the Soviet Union 1991. • Free Market Capitalism (w/ some Mixed Economies) the only show in town. • Fall of the Berlin Wall-"Fall of Communism"
Free Market (Capitalist) Economies • Economic questions answered by producers and consumers • Limited government involvement • Private property rights • Wide variety of choices and products • U.S., Japan • Grocery Shopping
Free Market (Capitalist) Economies • Thinking Things through: • What role are the producers playing in this model? • What role does the consumer play? • Trade offs and Opportunity costs • Lets put thoughts on this screen: • Take 3 mins to talk this out with your Star Wars Partner- Empire you speak first- Jedis you report out
Adam Smith • 18th century Scottish economist • Published “The Wealth of Nations” in 1776 • Explained the workings of the free market within capitalist economies • He provided the theory of the Free Market system • Invisible hand of the market Issues in the Free Market
Adam Smith (cont.) • Laissez-faire - Government stays out of business practices “hands off” to let the market place determine production, consumption and distribution. • Individual freedom and choice emphasized
The Free Market-A Visual The Market Place This “meeting place” is called the Free Market AKA Capitalism (System)
Principles of Capitalism • Competition – Businesses must compete to sell their products to consumers • How does competition create better options for consumers?
Principles of Capitalism • Voluntary Exchange – businesses and consumers MUST be free to buy or sell what and when they want. • Why is this important to have in order for products/goods to “move” in the market?
Principles of Capitalism Private Property – Individuals and businesses MUST be able to get the benefits of owning their OWN property. Government doesn’t control it. Why wouldn’t you want govt to have control of property?
Principles of Capitalism • Consumer Sovereignty – consumers get to make free choices about what to buy and this helps drive production • How do you think this can impact the movement of goods and services?
Principles of Capitalism • Profit Motive – people want to make or save $$$$. Their “Self Interest” motivates Capitalism.
What happens when the market “crashes”? • In 1929, the “Free Market” failed, crashed, broke down, collapsed, etc • Something had to be done in order to protect people’s lives who were affected by the crash • Therefore Govt involvement in the free market increased passed regulations (laws) to create a “Safety Net” to “catch” people if the market falls again
Principles of Capitalism • Social Safety Net – “Mixed Economy” idea that says the government should NOT allow people to suffer in economic crisis (natural part of Capitalism’s “Business Cycle”), but provide security instead Examples of the Net: Social Security, Unemployment Welfare, etc.
Mixed Economy/Socialism • Government involvement and ownership and control of property, of decision making, and companies. • Government control of business • Social “safety net” for people • Socialism • Common in Europe, Latin America, and Africa • The Nordic Model of Mixed Economy
Issues with Mixed Economies • There are some trade offs and opportunity costs with mixed economies and the Nordic Model Tax Rates for the countries in the Nordic Model • Denmark – 51% • Finland- 30% • Iceland- 46% • Norway- 47% • Sweden- 57% • U.S. Tax Rates
Closing This Conversatoion • This conversation described the basics of OUR economic system. • But wait, what were the issues described in the economic recession of 2008? • What were the Occupy Wall Street protesters asking for? • Take 3 mins with your SW partner to remember our initial conversations about the Economy • Out to the floor for discussion
Bringing the Two Worlds Together • For your exit slip, I want to see how your brains are processing this “system” and put it next to the original issues discussed at the start of Econ • Take a look at ALL of the “Principles of Capitalism” • Choose which ones have the potential to create the problems we saw in the 2008 Economic Crisis • Discuss how they can be a problem- you can refer back to any previous information • What are your thoughts right now on our economic system described today? Your opinion, reactions, etc