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ECONOMIC SYSTEMS

ECONOMIC SYSTEMS. ECONOMIC SYSTEMS. Is the way a society uses its scarce resources to satisfy its peoples unlimited wants. Traditional Economy.

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ECONOMIC SYSTEMS

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  1. ECONOMIC SYSTEMS

  2. ECONOMIC SYSTEMS Is the way a society uses its scarce resources to satisfy its peoples unlimited wants

  3. Traditional Economy Where families, clans, or tribes make economic decisions based on customs & beliefs that have been handed down from generation to generation Goal is survival Everyone has a set role Men are hunters & herders Women cook, tend crops, raise children Youngest help parents & learn skills Good of group/society is greater than individual

  4. Traditional Economy • They resist change • b/c they are based • on tradition & custom • Prevent people from • doing what they want • Lower standard of • living • Clearly answers • the 3 economic • questions • Little disagreement • over economic • goals & roles

  5. Command Economy Government decides what goods and services will be produced, how they will be produced, and how they will be distributed Government officials (Central planners) consider the resources & needsof the country; distribute those resources according to their judgment Gov’t usually owns the means of production

  6. Pros & Cons of Command Economies PROS: Seek to provide for everyone Leaders use the nation’s resources to produce items that may not make money in a market economy

  7. CONS: Workers have little motive to work Individual rights are under the needs of state Central planners have little understanding of local conditions (great suffering of lower class) Shortages are common

  8. Why are consumer goods often in short supply in a command economy? Because they often set prices well below that of a market economy.

  9. Why do these economies often fail? Because of the human suffering that often goes hand in hand with command economies.

  10. In a Communist economic system, the ____________________ owns the means of production. GOVERNMENT Workers get their ________________ from the state, which tend to be low because the state is not worried about making a _________________, just ensuring the basic needs of its people The government sets the prices of ___________________. They typically set them _________ so that the masses can afford them. WAGES GOODS & SERVICES LOW PROFIT

  11. Due to low prices of goods and services and low worker productivity, ______________ of goods/services tend to low, therefore resulting in _______________________. Due to _________ wages and getting paid regardless of worker _________________________, there is little _______________________ to work hard. LOW SUPPLY PRODUCTIVITY INCENTIVE SHORTAGES

  12. LOW Also, due to _________ wages, there is little incentive for people to go on to ________________ for advanced degrees. This leads to a shortage of ________________, ______________, _______________, etc. These shortages contribute to human suffering. There is a shortage of ___________, ___________________, toiletries, etc. COLLEGE FOOD MEDICINE DOCTORS LAWYERS TEACHERS

  13. Fundamentals of a Market Economy

  14. Market Economy Based on supply and demand, not government directives Consumers drive the economy Producers decide what goods/services they will offer

  15. Government Involvement Private Property Fundamentals of a Market Economy Voluntary Exchange Specialization Profit Consumer Sovereignty Competition

  16. Private Property Buyers and sellers are free to own and use private property

  17. Limited Government Involvement • Buyers and sellers must be free to operate with minimal government intervention • Laissez faire  “leave things alone” • Capitalism  economic system that is based on private ownership

  18. Voluntary Exchange in Markets • When a buyer and seller agree to do business together, each believes that the benefits outweigh the costs • Based on an exchange of a product for money • Self-interest guides voluntary exchange

  19. Profit A financial gain from a business transaction Sellers are free to attempt to maximize their profits

  20. Competition VS. Sellers are free to attempt to get the business of others by offering the best deal

  21. Consumer Sovereignty Consumers are free to purchase what they want and to refuse products they do not want

  22. Specialization Buyers and sellers are able to concentrate their efforts in areas where they have an advantage

  23. Circular Flow Model www.classzone.com Page 53

  24. Adam Smith vs. Karl Marx Capitalism 1723 – 1790 The Wealth of Nations Laying the foundation for modern economics Alexander Hamilton Karl Marx Defenders/critics of capitalism Nation would be wealthier w/free trade “Invisible hand guides the market place” Communism/Socialism 1818 – 1883 The Communist Manifesto (1848) Das Kapital Laid the foundation for socialist economic theory Russian Revolution 1917 Chinese Revolution 1949 Tension between worker & owner would lead to revolt & create a new classless society “Onion Theory”

  25. Mixed Economy An economic system that has elements of traditional, command, and market economies Most common

  26. Trend 1: Change in Ownership • Nationalize • Means to change from private ownership to government or public ownership • Privatize • Means to change from government or public ownership to private ownership

  27. PUBLIC SECTOR The public sector, sometimes referred to as the state or the government sector, is the part of the economy that deals with the production, ownership, delivery and allocation of goods and services (also known as PUBLIC GOODS) by the government, paid for by taxesfor citizens, whether national, state, or local

  28. PRIVATE SECTOR The private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals, usually as a means of enterprise for PROFIT, and is not controlled by the state.

  29. You Have the following to do! Anyone not going to be here tomorrow, you have to take test today or you will get a zero. Turn in Spirals #1 & #2 Turn in Globalization in you Life Work on vocab and review sheet and if time permits Spiral #3

  30. Trend 2: Increasing Global Ties • Global Economy • All the economic interactions that cross international boundaries • Why the surge? • Opening up of the world’s markets to trade • Development of faster, safer, & cheaper transportation • Cross-border business partnerships

  31. Russia: From Communism to Capitalism http://www.pbs.org/frontlineworld/stories/moscow/

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