Economic Systems

1. Economic Systems

2. Discussion Topic • How do economic systems answer your basic economic questions?

3. Basic Economic Questions • What to produce • How to Produce • For whom to produce

4. Traditional Economy • Answers the basic economic questions by rituals, habits, religious beliefs, and customs

5. Traditional Economy • Individual roles are determined the elders • Examples: herding cattle, hunting and gathering, subsistence farming

6. INUIT OF CANADA

7. Bushmen of Kalahara

8. Bush women of Kalahara

9. Central Australia

10. Traditional Economy Advantages • There is little or no uncertainty- everyone knows the role they play • Life is generally stable, predictable, and continuous

11. Traditional Economies Disadvantages • Tends to discourage new ideas and new ways of doing things • Lack of progress lowers the standard of living

12. How do traditional economies answer the basic economic questions? • 1. What to produce? • Whatever customs and traditions dictate

13. How do traditional economies answer the basic economic questions? • 2. How to produce? • Whatever customs and traditions dictate

14. How do traditional economies answer the basic economic questions? • 3. For whom to produce? • Whatever customs and traditions dictate

15. Command Economy • Basic Economic Questions are answered by the government

16. Command Economy • Only two Command Economies left in World-Cuba and North Korea

17. Command Economy • It is associated with communism and socialism

18. Cuba

19. North Korea

20. Advantages of Command Economy • The government has total control over production and its factors, thus the economy can change rapidly. Whatever is needed most will be produced

21. Command Economy • Example is collective farms which are owned and operated by the central government. Money made goes to the government

22. Advantages of Command Economy • Free education, free healthcare, and other public services

23. Disadvantages of Command Economy • Economy is designed to meet needs not wants • There is no incentive to work hard—people don’t often lose their jobs so they do the bare minimum

24. Disadvantages of Command Economy • Economy supports a large bureaucracy (government) which means decision making is slow, costs of production are high, and there is no flexibility

25. Disadvantages of Command Economy • There is no reward for initiative

26. How do command economies answer the basic economic questions? • 1. What to produce? • Whatever the government says to produce

27. How do command economies answer the basic economic questions? • 2. How to produce? • However the government tells you to produce

28. How do command economies answer the basic economic questions? • 3. For whom to produce? • For whomever the government tells you to produce

29. Market Economies • Basic economic questions are answered by consumers

30. Market Economy • Laissez-faire is a pure market economy meaning “allow to do”. The government has little or no power in what is produced or sold.

31. Market Economy • Free-enterprise system- business owners set their own prices and sell their own goods.

32. Advantages of Market Economy • Adjusts to change based on consumer wants • High level of individual freedom • Low level of government interference

33. Advantages of Market Economy • Because individuals make the decisions, everyone has a voice in the way economy runs

34. Advantages of Market Economy • Wide variety of available goods and services • Many choices=high degree of consumer satisfaction

35. Disadvantages of market Economies • Poverty: only those with money can participate

36. Disadvantages of market Economies • Market does not provide for people’s basic needs. Government must attempt to do this (Think about Katrina)

37. Disadvantages of market Economies • High degree of uncertainty: people lose their jobs and businesses fail

38. Disadvantages of market Economies • Greed based system puts profits before people (think about loss of jobs here. What caused it?)

39. What kind of economy do the U.S., Canada and the U.K. really have? • Are they truly Free market economies? • Does the government regulate businesses? • Does the government control any businesses?

40. How do market economies answer the basic economic questions? • 1. What to produce? Directed by the consumers.

41. How do market economies answer the basic economic questions? • 2. How to produce? Companies decide cheapest and most efficient means of production.

42. How do market economies answer the basic economic questions? • 3 For whom to produce? The consumer that has the ability and money to afford the companies product.

43. Mixed Economy • An economy is considered a mixed economy when there are characteristics of more than one economy evident. • For example, the United States is a mixed economy because there are privately owned businesses that operate on their own like a market system but they are regulated by the government also.