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What are the 3 main questions???

What are the 3 main questions???. What are the 3 main questions???. What goods/ services should be produced? 2. How should they be produced? 3. For whom should they be produced?. Types of Economic Systems.

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What are the 3 main questions???

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  1. What are the 3 main questions???

  2. What are the 3 main questions??? • What goods/ services should be produced? 2. How should they be produced? 3. For whom should they be produced?

  3. Types of Economic Systems There are 4 systems that differ based on how they answer the 3 basic questions (what, how, for whom to produce) Trdn Cmnd Mrk Mxd The traditional commander made his mark with his mix

  4. Traditional Economy: system in which economic decisions are based on customs & beliefs that have been handed down from generation to generation • “Things are done the way they always have been done” • Economic decisions are based on customs & beliefs handed from generation to generation • If your father was a fisherman, you would be a fisherman, your son would be a fisherman, etc…

  5. Traditional Economy… • ADVANTAGES • You know what’s expected of you • Family/ community ties are very strong • DISADVANTAGES • Change is discouraged & even punished • Choices among consumer goods are rare • Rare increase in the level of material well-being • Things tend to stay the same • In Australia, Aboriginal tribes/ civilizations are traditional economies

  6. Command Economy: system in which the gov’t controls the factors of production & makes all decisions about their use • Also known as a “controlled system” • Decisions in gov’t are made by leaders only • One leader, small group of leaders, group of central planners • Leaders control all facets of the factors of production (LALAgsCAP’EN) • You get paid what your leader decides & you may not be able to choose your own career

  7. Command Economy… • DISADVANTAGES • Lack of incentives to work hard since gov’t set workers’ salaries • Little/ no room of “moving up” • Lack of consumer choices North Korea is a command economy – all economic activity is gov’t planned

  8. Market Economy: system in which individuals own the factors of production & make economic decisions through free interaction while looking out for their own & their families’ best interests • Also known as “capitalism” • Opposite of a command economy • Limited gov’t makes it possible for individuals to make their own economic decisions • Individuals control all facets of production (LALAgsCAP’EN) • These decisions are guided by market prices

  9. Market Economy…. MARKETS: • Market: process of freely exchanging goods & services between buyers & sellers • Voluntary exchange • Worldwide – oil • Local – babysitting/ snow shoveling • High priced goods = relatively scarce product • Low priced goods = relatively plentiful product • *Prices can fluctuate between high & low – this results in an incentive-driven system*

  10. Market Economy… • ADVANTAGES • Freedoms: choose career, spend freely, own property, take risks, earn profits • Competition allows for a HUGE array of goods & services to pick from • DISADVANTAGES • Too old/ too young/ too sick are pushed out of the system & rely on charity or hand-outs

  11. Market Economy…Circular Flow of Income/ Output • Circular flow of income & output: economic model that pictures income as flowing continuously between businesses & consumers • The flow of resources, goods & services, & income is circular

  12. Circular flow of income & output • Dollars flow from businesses to individuals & back to businesses • Factors of production flow from individuals to businesses, which use them to produce goods & services that flow back to the individuals

  13. Mixed Economy: system combining characteristics of more than one type of economy (market & command) • Most countries in the world have a mixed economy • Private ownership of property & individual decision making are combined with gov’t intervention & regulations • United States • most decisions are made by individuals within the market • BUT federal, state & local gov’ts make laws protecting private property & regulating areas of business I own my own business & control everything BUT need to follow business regulations

  14. Your Turn…. Come up with a memory device…. How can you (we) remember the following: • 4 types of systems: traditional, command, market, mixed • We’ll vote on the best…. That person gets 5 smackers!!!

  15. Circular flow of income & output • Dollars flow from businesses to individuals & back to businesses • Factors of production flow from individuals to businesses, which use them to produce goods & services that flow back to the individuals

  16. Major Economic Systems (you’ll see this again… do it right!)

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