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Economic Systems

Explore different economic systems and how they answer the three major production questions. Learn about traditional, command, market, and mixed economies, their advantages and disadvantages, and the role of government in each. Discover the characteristics of capitalism and communism, and why communism doesn't work.

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Economic Systems

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  1. Economic Systems

  2. 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.

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

  4. INUIT

  5. Examples of Traditional Economies • Inuit tribe • Some parts of South America • Some parts of Africa • Aboriginal tribes of Australia • Some island societies

  6. Traditional Economies Disadvantages? Advantages?

  7. Command Economy • The answers to the three major production questions are given by some strong central authority (i.e. the government) • Communism – an economic system in which all factors of production are the property of the state.

  8. Examples of Command Economies • Cuba

  9. Examples of Command Economies • North Korea

  10. Command Economies Weaknesses Strengths

  11. Market Economy • Businesses and individuals act in their own best interest to answer the three major production questions. • Capitalism – an economic system in which individuals and businesses compete, with a minimum of government interference • “Laissez-Faire”

  12. Market Economies Weaknesses Strengths

  13. Mixed Economies • Mixed-Market • Socialism • Economies in Transition

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

  15. 2009 Index of Economic Freedom: The Top 10 http://www.heritage.org/Index/

  16. 2011 Index of Economic Freedom:

  17. Bottom 5

  18. Role Players in the Mixed-Market Economy • Consumers • Producers • Government • Consumer • Producer • Protector • Regulator • Provider

  19. 7 Economic & Social Goals of Capitalism • Economic Freedom • Economic Equality • Economic Security • Economic Growth • Economic Efficiency • Price Stability • Full Employment

  20. Communism Communism: How/Why does it rise? How/Why does it fall?

  21. Capitalism Communism vs.

  22. Capitalism Communism vs.

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

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

  25. Why Doesn’t It Work? • Incentive Problem • Average Test Scores Example • Coordination Problem • In one word, why doesn’t it work? GREED

  26. When CAN It Work?

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

  28. Characteristics of Free Enterprise Capitalism • Economic Freedom • Voluntary Exchange • Consumer Sovereignty: The consumer drives the market • “The customer is always right!” • Private Property Rights • The Tragedy of the Commons • Profit Motive

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