Economic Systems

1. Economic Systems Traditional, Command, Market and Mixed.

2. ECONOMIC SYSTEM an organized set of procedures a nation uses in producing and distributing goods and services The system is determined by who answers the 3 basic economic questions

3. Traditional Economies *Families, clans, or tribes make economic decisions based on customs/beliefs *The one goal of these societies is survival. • Advantages - stable & predictable • Disadvantages – discourages progress

4. Traditional Economy Cont. • The good of the group always matters more than individual desires • Answering the 3 Basic Questions • What- what has always been produced will continue to be produced. • How- in traditional ways. • For whom- the good of the group.

5. Pure Command (Planned) Economies • Government owns land and capital (entrepreneurs do not exist). • Government usually owns means of production. (resources and factories) • Advantage – resources can be redirected very quickly • Disadvantages • little economic freedom or economic incentives • wants & needs of individual consumer rarely considered

6. Pure Command Economy Cont. • Closest examples: North Korea or Cuba • Answering the 3 Basic Questions • What- the government decides. • How- by government owned means of production. • For whom- the whole group/country

7. Karl Marx • Both socialism and communism were developed from the ideas of Karl Marx. • Marx studied capitalism and economics for years and he believed that capitalism created a system of wage slavery. The workers’ wages would remain low, but the rich became richer. • Marx predicted that, in time, the workers would overthrow this system and ownership of factories would be transferred into public hands.

8. Karl Marx continued… • His book The Communist Manifesto stated that over time more and more wealth would be concentrated into fewer and fewer hands, and dissatisfied workers would revolt and create a new society without economic classes. • He discussed more of his economic ideas in another book called Das Kapital http://www.history.com/topics/karl-marx

9. Pure Market Economy • Exchange of goods/services is driven by self-interest and incentives (free market) • Motivated by profit, producers make what consumers want (free enterprise) • Advantages • Act in your own self-interest • wide variety of goods/services; efficient • Disadvantages • only productive resources rewarded • market failures (monopolies, public goods, etc.) • unequal income distribution

10. Pure Market Economy Cont. • Based on individual choice, not government directives. • Answering the 3 Basic Questions • What- the goods consumers will buy are produced. • How- by individually owned enterprises • Forwhom- people who can afford them

11. Adam Smith • Adam Smith is known as the Father of Economics. • Wrote Wealth of Nations • In this publication he argued that a nation would be wealthier if it engaged in free trade rather than mercantilism. • In such a free market, the buyer and the seller benefit from each transaction. http://www.investopedia.com/video/play/adam-smith-father-economics/

12. Which type of economy is this? • Government plans how resources are used. • Government owns all of the resources.

13. What type of economy is this? • The one goal of these societies is survival.

14. What type of economy is this? • Unequal income distribution.

15. What type of economy is this? • Government makes all economic decisions.

16. What type of economy is this? • Exchange of goods/services is driven by self-interest. • Only productive resources are rewarded.

17. What type of economy is this? • Families make decisions based on customs. • The good of the group always matters more than individual desires.

18. Economic Continuum (Traditional) Pure Command Pure Market

19. Economic Continuum Authoritarian Socialism Capitalism (free market) Pure Command Pure Market • Authoritarian • relies on central govt. planning • allows little economic freedom • Socialism • allows election of officials • leaves govt. in control of major industries • allows free markets for other goods & services • Capitalism • leaves market decisions to buyers and sellers • govt. provides a legal framework for the interaction to occur

20. Types of Command Economies • Socialism: An economic system in which the government owns some or all of factors of production. • Government makes decisions in the basic industries. The rest is privately owned. • Market forces distribute privately-owned resources.

21. Types of Command Economies • Communism: a more extreme form of socialism in which there is no private ownership of property and little/no political freedom. • Often an authoritarian system. This requires absolute obedience to authority. Government makes all economic decisions. Government planners decide how resources are used.

22. Real World Economic Spectrum North Korea Hong Kong England Sweden France Ch ina Japan Cuba U S A Pure Command Pure Market

23. Mixed Economic Systems *An economic system that has elements of traditional, command, and market economies. -The most common type of economic system.

24. Can you identify each economy? • Ex: A farmer and his family living in the rural Midwest of the United States. The farmer’s family has owned the farm for generations. While the family uses modern farming methods, everyone is expected to help out around the farm. The kids go to a public high school, and the grandparents receive a Social Security check every month.

25. Video time • https://www.youtube.com/watch?v=B43YEW2FvDs

26. Hands on activity… • In a small group (2 or 3), or individually, create a poster that shows the 3 basic questions and how a traditional, command, or market economy answers each of those questions. Make sure that your poster contains at least one illustration for each question.