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Economics

Economics. Chapter 2. What is an economic system?. Reflects the process or system a nation or society follows to produce goods and services. Determines who answers the 3 basic economic questions. What are the four types of economic systems?. Traditional Command Market Mixed. The Catch.

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Economics

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  1. Economics Chapter 2

  2. What is an economic system? • Reflects the process or system a nation or society follows to produce goods and services. • Determines who answers the 3 basic economic questions.

  3. What are the four types of economic systems? • Traditional • Command • Market • Mixed

  4. The Catch Pure traditional, command, and market don’t exist, all economies today are mixed.

  5. Traditional Economies Features • Based on custom and traditions • Children often carry on the role of their parents • If parents were fisherman, you will be fisherman • Sharing is the main goal of these systems • Goods and services produced are distributed among group’s members

  6. Traditional Economies Features • Work to benefit everyone, rather than focus on individual needs • How are the three basic economic questions answered?

  7. Traditional - Aborigines of Australia

  8. Command Economies Features • Individuals under this system are left with little say • Pure command died out with the feudal system in Europe • King and Queen – power and money • How are the three basic economic questions answered?

  9. Command – Middle Ages Europe

  10. Market Economies Features • Self Interest = impulse that drives people to fulfill their needs and wants • Do what you want, no government control • Incentive = is anything that encourages you to behave in a particular way • Financial reward (bonus); Financial Penalty • How are the three basic economic questions answered?

  11. Invisible Hand? • Adam Smith • While individuals work to meet their own needs and wants, self-interest acts as an “invisible hand” that leads them to do what is best for society

  12. Mixed Economies • Combination of the 3 models previously discussed • Authoritarian Socialism (Communism) • Democratic Socialism • Capitalism

  13. Authoritarian Socialism(Mixed Economy #1) • Close to command • Command – King & Queen work for the wealthy • Communism – a dictator tries to ensure everyone is equal • Limited decision making for individuals • Government controls or owns nearly all factors of production

  14. Authoritarian Socialism – Totalitarian Governments • Germany, under Adolf Hitler • the USSR, under Joseph Stalin • China, under the Communist rule of Mao Zedong • Italy under Benito Mussolini • North Korea under Kim Il Sung • Syria under Hafez al-Assad • Iraq under Saddam Hussein

  15. Democratic Socialism(Mixed Economy #2) • Considered to be the middle ground between authoritarian socialism and capitalism • Government ownership of some of the factors of production (utilities, telephone, airlines, etc.) • EX. France, Sweden, Netherlands • Election of government officials

  16. Capitalism (Mixed Economy #3) • Closest to market • Market has NO government regulations • Free to catch as many walleyes as you want • Government does enact regulations to guide business and protect citizens • Regulations on Fishing • Taxes • Private ownership and free choice are strongly emphasized (Basis of Capitalism)

  17. Capitalism (Mixed Economy #3) • Individuals own factors of production and answer the 3 basic economic questions • Ex. Canada, Mexico, Japan, United States

  18. CapitalismU.S., Canada, Mexico, Japan

  19. Goals of United States Economy • Freedom • Efficiency • Security • Stability • Equity • Growth

  20. Goals:FESSEG • 1. Freedom • -choose occupation. • Business free to change and grow. • Investors free to decide what to do with their money.

  21. Goals:FESSEG • 2. Efficiency • Make best use of our scarce resources. • Can be measured by how many goods and services a nation’s workers produce.

  22. Goals:FESSEG • 3. Security • -Protect members from poverty, business failures and bank failures, acts of terrorism, and internet crimes • Individual can purchase different types of insurances. • Government promotes security through unemployment compensation, insuring bank deposits.

  23. Goals:FESSEG • 4. Stability - Strive for full employment: lowest possible level of unemployment in the country - Price stability: overall prices remain constant

  24. Goals:FESSEG • 5. Equity • Fairness • Right and wrong • All members of society share costs and benefits. • NOT equality

  25. Goals:FESSEG • 6. Growth -Increase the amount of goods and services produced by each worker -allows consumers to increase consumption • Increase the standard of living. • Measured by how much the average person in that country is able to consume in a given period of time

  26. Priorities • Individuals, businesses, and the government decide which goals are most important to them. • Needs and wants often conflict

  27. Priorities Can Change • 1970’s : dramatic price increases encouraged many people to focus on stability • 1980’s : concerns about unemployment and low productivity encouraged focus on security and growth • 2013:

  28. Priorities Can Conflict • People have differing goals • Fargo Flood residents vs. Minneapolis residents • Fargo during flood: What goals? • Now? • Minneapolis: ?

  29. Mystery Island • Imagine you end up with 200 people on Mystery Island. • What type of mixed economic system would you set up? WHY? • What would be your TOP 3 Economic Goals? WHY? • List 3 Economic RULES/LAWS you would institute.

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