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Types of Economic Systems

Learn about the different types of economic systems, including command, capitalistic, and mixed systems. Discover the principles of capitalism and the five questions each economy must address. Find out how income distribution and the ability to adapt to change play a role in economic systems. Explore the importance of property rights and reasons for the growth of the government sector.

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Types of Economic Systems

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  1. Types of Economic Systems

  2. Types of Systems • The question that each economy faces is whether they want prices, quantities, distribution of goods and services, and distribution of income to be determined by the private sector or the public sector. • Private sector – made up of consumers and businesses. • Public sector is the government. There are different levels of government : local, state and federal. • Some services are produced by both private and public agencies such as education, trash collection, and security. • The groups in the economy are consumers, businesses, and government.

  3. An Economic System designed around consumers and businesses.

  4. Types of Economies • Command - governments determines prices and quantities produced • Capitalistic • free market interaction between buyers and sells determines prices and quantities produced • Mixed • a mix where in some markets the government is a buyer, regulator, or producer. • Even with a free market capitalist system there are times when the system does not operate in a manner that best suits the overall population. These occurrences are known as free market breakdowns. Some of these free market breakdowns are on the “Free Market Breakdown” page on the website.

  5. Principles of Capitalism • Capitalism addresses the needs of consumers and businesses. • Capitalism attempts to solve problems without government intervention. • Capitalism inspires free enterprise. • Capitalism promotes private property rights.

  6. Five Questions each economy must address • How a country answers these questions reveals the type of economic system that will prevail. • A capitalistic country looks to the private sector to address these questions.

  7. Question: 1 • How much should the economy produce? • It depends on the resources it has available • The resources are land, labor, capital and entrepreneurial spirit. The goal is to use each of the resources efficiently.

  8. US Farmland • On the arable land, which is only 11% of Japan's total land area, the population density is among the highest in the world. • 145,833 sq mi in Japan – 15,000 square miles of farmable land • 9,600,000 square acres • Census of Agriculture• Contact NASS Customer Service, 1-800-727-9540. http://news.exxonmobil.com/press-release/exxon-mobil-corporation-announces-estimated-second-quarter-2013-results

  9. 2. What should be produced?

  10. 3. How are the goods and services produced? • By the most efficient companies. • Top Ten Most Profitable Companies • Sometimes by the government. • In a capitalistic system the best companies survive, the weaker companies go out of business. • 1 Royal Dutch Shell oil 2 Wal-Mart Stores • 3 Exxon Mobil oil 4 Sinopec Group oil • 5 China National Petroleum oil 6 BP oil • 7 State Grid oil 8 Toyota Motor • 9 Volkswagen 10 Total oil

  11. 4. Who receives the output?Income Distribution by Quintile

  12. The Distribution of Income is not equal in the United States. • In the US the top 20 percent of wages earners make 53 percent of the income. • The bottom 20 percent of the wage earners make 3.9 percent of the money. • In a Communist Society, theoretically every one would make the same amount. Their would be no rich or poor. Yet, there would also be no incentive to work hard because everyone makes the same amount.

  13. Percent of Taxes Paid by Quintile

  14. 5. Can the system adapt to change?

  15. Employment by Sector

  16. These were so cool!

  17. State of the Art

  18. Change does occur in the US without government intervention. • Businesses change to earn profit. Cell phones have gotten smaller, batteries last longer, service has improved. Why? Because companies want to earn profit, and these qualities attract consumers! • Music is now played on a Smart Phone, MP3 or I-Touch. • Why? Because companies want to earn profit and these smaller units attract consumers.

  19. The U.S. Economy is mixed. • Some goods and services are produced by private companies. • Some goods and services are produced by the government. • The trend in the US is for more government. There are pros and cons of more government. The biggest cons are incentive to work and large deficits. The pros are stability and equality among citizens.

  20. How can the type of economic system be determined? Government percent of overall spending • http://anepigone.blogspot.com/2008/03/government-spending-as-percentage-of.html • http://www.usgovernmentspending.com • http://www.heritage.org/index/Ranking.aspx

  21. Property Rights are important in Capitalism • Tragedy of the Commons • Ownership is necessary, otherwise no one will value the property. • The Family Pond – passed down to the next generation.

  22. Why has the government sector grown so much? • Free Market Breakdowns?

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