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Economic Systems

Economic Systems. All societies have an economy or economic system – an organized way of providing for the wants and needs of their people. Three major kinds of economies exist: Traditional Command Market. Many of our actions spring from habit, custom, and tradition….

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Economic Systems

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  1. Economic Systems

  2. All societies have an economy or economic system – an organized way of providing for the wants and needs of their people Three major kinds of economies exist: Traditional Command Market

  3. Many of our actions spring from habit, custom, and tradition…

  4. In a society with a Traditional Economy… • The allocation of resources, and really all other economic activity, stems from ritual, habit, or custom

  5. In a society with a traditional economy… • There are many distinct advantages • Everyone knows which role they play • Little uncertainty over what to produce • Little uncertainty exists over how to produce • For whom to produce is dictated by tradition • Tradition dictates how people live their lives

  6. In a society with a traditional economy… • There are many distinct disadvantages • Traditional economies tend to discourage new ideas and new ways of doing things • Strict roles have the effect of punishing people who act differently • Lack of progress leads to a lower standard of living than other types of economies

  7. Other societies have a command economy, where a central authority makes most of the economic decisions… In Soviet Russia…

  8. Other societies have a command economy, where a central authority makes most of the economic decisions… • In Soviet Russia… • The State Planning Commission: • Determined needs of the people • Set goals for the economy • Set production quotas

  9. In a society with a command economy, there are distinct advantages… • It can change direction drastically in a relatively short amount of time • Many health and public services are available at little to no cost

  10. In a society with a command economy, there are distinct disadvantages… • Not designed to meet the needs of consumers, even though many basic needs are met • The system does not provide an incentive for people to work • Requires a large decision-making bureaucracy • The system does not have the flexibility to deal with minor issues • New and innovative ideas may be discouraged

  11. In a market economy, people and firms act in their own best interests to answer the “what,” “how,” and “for whom” questions In a market economy, how are the three economic questions answered?

  12. VS. • In a market economy, people’s decisions act as votes • When consumers buy certain products, they are casting their dollar votes for the product • Consumers therefore play a key role in deciding what is produced VS. VS.

  13. Examples?

  14. There are distinct advantages in a market economy… • Over time, the system can adjust to change • Small degree of government intervention • Decision making is decentralized • A wide variety of goods available to the consumer • High degree of consumer satisfaction • High degree of individual freedom

  15. There are distinct disadvantages in a market economy… • The market economy does not provide for the basic needs of everyone in society • The market economy does not provide enough of the services people value highly • There is a relatively high degree of uncertainty that workers and businesses face as the result of change in a market economy • Market economies can fail if three conditions aren’t met: • Markets must be competitive and allow producers to compete with one another • Resources must be free to move from one activity to another • Consumers need access to adequate information so they can make wise choices

  16. Economic Systems • Which system is best for the citizens of a country? Why? • Which system is the most stabile? Why? • Which system provides for its citizens the best? Why?

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