Introduction to Economic Systems

1. Economic Systems:An introduction Market – Mixed - Planned

2. Economic Systems • Economics is the study of the production, distribution, and consumption of goods and services • An economic system is an organized model for making decisions about the distribution of resources.

3. There are three basic types of economic systems. They are: • Market economy • Planned economy • Mixed economy

4. Mixed Economy An economic system that balances the ideas of self-interest and individualism with collectivism and planning of the economy. Market Economy An economic system that stresses the ideas of individualism and self-interest. Economic decisions are based on the actions of consumers and producers Planned Economy An economic system that stresses collectivism and the coordination of resources to serve the goals of society. Economic decisions are almost totally made by the government.

5. Planned Economy Mixed Economy Market Economy North Korea Canada USA Planned Economy Resources owned by the government Government decides what to produce and how to use resources Consumer has little influence on economic decision making No private ownership of businesses or property Mixed Economy Some resources publically owned and some are privately owned Both government and individuals make economic decisions Government may own some businesses and property Individuals can own businesses and property Market Economy Resources privately owned Businesses privately owned Property privately owned Consumers decided what is to be produced No government involvement

6. Planned Economy • Emphasis on collectivism and group control • Emphasis on cooperation • Emphasis on equality • Economy is planned from the top down meaning that a planned economy is centralized

7. Centralization • The power and authority of a government is concentrated at the center or the top. The person or elite at the top make targets for all sectors of the economy (industry/farming…). These targets are then passed down to the next level and so on and so on till it reaches the workers. Each level of government is responsible to the level above them.

8. The Central Government Agriculture Planning Agency The red arrow represents the direction of power Provincial Agriculture Planning Committee Regional Agricultural Planning Committee Ranching Planning Committee Farming Planning Committee State Ranch State Ranch State Ranch State Farm State Farm State Farm

9. Market Economy • Emphasis on individual freedom • Profit is the goal of business • Self-interest • Competition is essential and desirable • The economy is not planned and is decentralized.

10. Decentralization • No single decision-maker exists, but many separate decision-makers. Business owners, based on the concept of supply and demand, decide what is to be produced, distributed and consumed. • Consumers decided the demand therefore they are also part of the decision-making

12. Mixed Economy • A mix between capitalism(making money) and socialism (taking care of people) • Existence of a market system • Government exists for the people • Existence of social programs (programs that help individual or groups of people) • Some large companies may be owned by the government • Majority of businesses privately owned • Existence of government intervention in peoples lives socially and economically

13. Market and Planned • Market economies and planned economies are also often referred to as public and private enterprise systems.

14. Privately Owned and Publically Owned • It is important to understand the difference between a publically owned business and a privately owned business. • A publically owned business is one that is owned by the government. A good example in Calgary are the public libraries and Calgary Transit. The profits from these businesses go to the city government • A privately owned business is one that is owned by an individual. A good example is the local corner grocery store. Moon Grocery down the street from the school is owned by one family. All the profits from the store go the family.

15. Private Enterprise System • A private enterprise system is a system where individuals, without government interference, decide what is to be produced and how much is to be produced based on the concept of supply and demand. Private enterprise systems stress profit, competition, laissez-faire, self-interest, private ownership of property, businesses and resources.

16. Public Enterprise System • A public enterprise system stresses a plan with heavy government involvement and interference when answering what is to be produced, how much and when. A public enterprise system stresses collectivism, cooperation, equality, stability and incentive

17. The ultimate goal of all economic systems is to solve the problem of scarcity and in order to solve this problem an economic system must make use of its basic natural resources.

18. Scarcity • We has humans have unlimited wants but unfortunately we have limited resources. This is the problem of scarcity. Scarcity makes all economic systems make choices. Scarcity makes economic systems answer four basic questions.

19. The four basic economic questions What goods and services should be produced? How should the goods and services be produced? How should the goods and services be distributed? Who decides allocation of resources, methods of production and distribution of goods and services?

20. The Factors of Production • Factors of production are important to a country and an economy because all three combined show how rich or poor a country may be. The Industrial Revolution started in Great Britain because they had the availability of land, labour and capital in great numbers The basic resources of an economy are: • Land • Labour • capital

21. Land– is defined as the usual gifts of nature, such as farmland, mines, forests, rivers, lakes, natural resources and space to develop • Labour – the workers, especially manual workers, in a country, company, or industry considered as a group • Capital – material wealth in the form of money or property

22. The Public Good and Cooperation vs.The Public Good and Individualism • Some individuals believe that they must set aside their differences and individual interests to do what is best for society; that is the public good and cooperation. • Some people believe that if individuals to what is best for them then it will benefit society; that is the public good and individualism.