Chapter 2, Section 1 Economic Systems Essential Question: • Identify the 3 “pure” economic models, Explain the issue that exists with ALL THREE “pure” economic models, Identify the 3 “mixed” economies and explain which of the three mixed economies you would prefer to live in and why.
Chapter 2, Section 1 Economic Systems Economic Systems: • All societies have an economic system or economy, an organized way of providing for the wants and needs of the people in that society • Economic System-> Economy (same thing) • Economic Model= possible, but non-realistic economic system.
Chapter 2, SECTION 1 Economic Systems What/How/Who Traditional: • Traditional economic model • What to produce and how to produce are determined by custom and tradition • For who to produce is decided by the leaders of the community • Pro’s- Everyone knows what to produce (no uncertainty • Con’s- new ideas and alternatives are discouraged leading to waste.
Chapter 2, SECTION 1 Economic Systems What/How/Who Command: • Command economic model • All three basic economic questions are answered by a central authority (govt.)- • The advantages- Major changes in production can happen quickly, little uncertainty about what to produce (govt. tells you what to produce)
Chapter 2, SECTION 1 Economic Systems What/How/Who Command (cont.) • The Disadvantages: • Consumer needs not met • Little incentive to work hard
Chapter 2, SECTION 1 Economic Systems What/How/Who Market: • Market economic model • 3 basic questions answered by private producers and consumers with NO interference (govt.) • The advantages- • Can make production changes quickly • Producers and Consumers are free to buy/sell (or not) • Most members of this system get their needs met • Variety of Goods and Services • high consumer satisfaction
Chapter 2, SECTION 1 Economic Systems What/How/Who Market (cont.) • The disadvantages- • Does not provide for the needs of all in the society (only those who can afford goods or services). • Does not provide enough important non-profit services such as education or health care • Lots of uncertainty about the answers to the 3 basic questions (you don’t know what will be produced for you OR what you will produce)
Chapter 2, SECTION 1 Economic Systems What do the “models” have in common? • They DO NOT EXIST • In modern society, scarcity does not allow for Pure economic models where the rules are inflexible. • As a result we have mixed economies based upon the economic models
Chapter 2, SECTION 1 Economic Systems What is a mixed economy? • All MODERN economies are mixed btwn. Govt. and the people • Why mixed? Both people and govt. need to give input to ensure that the needs of society are addressed • Even in oppressive countries like N. Korea, people are allowed to make SOME economic decisions. • There are three examples of “Mixed Economies” The differences are based on how the 3 basic economic questions are answered.
Chapter 2, SECTION 1 Economic Systems Authoritarian Socialism (Communism) • In this Economy, the govt. makes almost all economic decisions and controls all the factors of production. • The govt. answers all of the 3 basic economic questions based on the NEEDS of ALL members of society • This system puts the needs of all above the wants of any.
Chapter 2, SECTION 1 Economic Systems Capitalism • In this Economy, the people make most of the economic decisions with limited oversight by the government. • The factors of production are owned by individuals who produce based on what makes the most profit (usually what satisfies the greatest needs of society). • Since individuals control the production decisions, they also control the price meaning that sometimes people do not receive the goods/service that they need b/c they cannot afford it.
Chapter 2, SECTION 1 Economic Systems Democratic Socialism • This economic system is seen as being in the middle of communism and capitalism. • Some of the factors of production are owned by govt. and some are controlled by individuals. • The idea is that certain products such as education or health care are universal and as such should not be limited to only those who can afford it.