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ECONOMIC SYSTEMS

ECONOMIC SYSTEMS. Three Economic Questions. What goods and services will be produced? What do we have? How will they be produced? Hand > machine > elsewhere Who gets the stuff?. 3 Economic Systems. Economic system (economy) – an organized way of providing for the wants and needs of people.

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ECONOMIC SYSTEMS

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  1. ECONOMIC SYSTEMS

  2. Three Economic Questions • What goods and services will be produced? • What do we have? • How will they be produced? • Hand > machine > elsewhere • Who gets the stuff?

  3. 3 Economic Systems • Economic system (economy) – an organized way of providing for the wants and needs of people. 1). Command 2). Market 3). Traditional

  4. Command Economies • Economic activity is planned out by the government, with people having little influence. • Examples: • Cuba • North Korea • Former Soviet Union

  5. Command Economies - Pros • Allows an economy to change direction very quickly. • After Stalin’s first two Five Year Plans, Russia moved from a rural agricultural economy to an industrial economy.

  6. Command Economies - Pros • Little uncertainty as to who will do what. • No unemployment because the government gives everyone a job (whether it is needed or not). • Ayn Rand - Anthem

  7. Command Economies - Cons • Not designed to meet the wants of consumers. • Stalin’s Five Year Plan directed resources away from both agriculture and consumer goods. • Provides strange incentives • Do just enough to meet quotas.

  8. Command Economies – More Cons • No rewards for individual performance. • Tetris • No flexibility to handle problems. • Great Depression disrupted the USSR’s First Five Year Plan • Requires a large decision making agency. • Stalin’s Five Year Plans governed all economic activity in Russia…that’s a lot of paperwork!

  9. Market Economies • People and businesses act in their own best interests to answer the three basic economic questions.

  10. Market Economies – How they work • Lure of personal and financial gain leads consumers and businesses to interact in various markets. • Each person acts as they see fit in order to advance their own interests.

  11. The First Economist – Adam Smith • “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” – Wealth of Nations, 1776

  12. Market Economies - Pros • Economy can adjust to change over time • Businesses can adapt to changing consumer tastes by creating new/different products. • High degree of individual freedom • Businesses and individuals are free to do what they want.

  13. Market Economies – More Pros • Small degree of government interference (Mixed Economy) • Economic decisions are made by all, not limited to government officials. • Seemingly unlimited variety of goods and services available to consumers.

  14. Market Economies - Cons • Does not provide for the basic needs of everyone. • Elderly, disabled and other groups would be unable to survive in a market economy without governmental assistance.

  15. Does not provide certain services that people value. National Defense & Education. High degree of uncertainty Jobs going overseas Market Failures Market Economies – More Cons

  16. Traditional Economies • Economic activity is based on tradition with roles determined by previous generations. • Examples: • Medieval Europe • Various hunting tribes in Africa and northern Canada

  17. Traditional Economies – Pros • Everyone knows what their role is. • Life is generally predictable and stable.

  18. Traditional Economies - Cons • Discourages new ideas and new ways of doing things. • Lack of progress leads to a lower standard of living.

  19. The US Economic System • Mixed Economy • Capitalism • Based on 4 important principles • Private Property • Freedom of choice • Profit • Competition

  20. Economic Goals • Economic Freedom • Economic Equity • Economic Security • Price Stability

  21. Economic Freedom • Individuals have freedom to choose their own occupations, employers, and spending habits. • Businesses have freedom to choose how and where to produce goods/services. • Are we meeting this goal?

  22. Economic Equity • People should receive equal pay for equal work. • People should receive adequate pay for the work they perform. • People should all have the same opportunities to get ahead. • Are we meeting this goal?

  23. Economic Security • We should have protection from negative economic events such as layoffs and injuries. • Social Security – federal program that provides disability and retirement benefits. • Everyone should have their basic needs met. • Are we meeting this goal?

  24. Price Stability • We should have stable prices that protect against inflation. • Inflation – a rise in the general level of prices. • Are we meeting this goal?

  25. When economic goals are not met… …People get mad!!!!!!!

  26. John Mellencamp - Scarecrow As you listen, think about the goals of: • Economic Equity? • Economic Security?

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