ECONOMIC SYSTEMS Scarcity Means There Is Not

ECONOMIC SYSTEMS

Scarcity Means There Is Not Enough For Everyone Government must step in to help allocate (distribute) resources

The 3 Major Production Questions • What to produce? • How to produce? • For whom to produce? We will classify economic systems into categories, based on how each of them attempts to answer these three questions.

Traditional Economy • The answers to the three major production questions are dictated by ritual, habit, or custom.

Where might you find a Traditional Economy? Examples of Traditional Economies: • Inuit tribe • Some parts of South America • Some parts of Africa • Aboriginal tribes of Australia • Some island societies • All are remote

Traditional Economies Advantages? • Simple • Defined roles • Strong community • Self-sufficient • Specialization • • • Disadvantages? Less growth/wealth Less choice/variety Lack of motivation Uncertainty Resource Curse

Command Economy • The answers to the three major production questions are given by some strong central authority (i. e. the government) • What is the “–ism” that comes to mind? • Communism – an economic system in which all factors of production are the property of the state. • Examples of Command Economies?

Examples of Command Economies • Cuba - ? ?

Examples of Command Economies • North Korea

Command Economies Strengths • Able to plan • More equality(? ? ) • Safety net • Can adjust quickly Weaknesses • Lack of incentive • …to work hard • …to innovate • • Low quality goods Less variety Corruption Difficult to plan successfully

Market Economy • Businesses and individuals act in their own best interest to answer the three major production questions. • What is the “–ism” that comes to mind? • Capitalism – an economic system in which individuals and businesses compete, with a minimum of government interference • Based on this definition, is the United States a “capitalist” economy? • “Laissez-Faire” – hands off

Market Economies Strengths • Economic freedom • Efficiency • Strong incentives • …to work hard • • …to innovate • High quality goods • More variety • Weaknesses Unequal Consolidation of wealth/power Doesn’t provide for everyone No safety net

Mixed Economies • Mixed-Market • Socialism • Economies in Transition Kinda, but not really

Total Economic Freedom Little Economic Freedom Communism Total Government Control Socialism Mixed-Market Capitalism No Government Control

2017 Index of Economic Freedom:

2009 Index of Economic Freedom: The Top 10 Rank Country Overall Change 1 Hong Kong 90. 0 +0. 3 2 Singapore 87. 1 -0. 2 3 Australia 82. 6 +0. 4 4 Ireland 82. 2 -0. 3 5 New Zealand 82. 0 +1. 2 6 United States 80. 7 -0. 3 7 Canada 80. 5 +0. 3 8 Denmark 80. 0 +0. 4 9 Switzerland 79. 4 -0. 1 10 United Kingdom 79. 0 -0. 5 http: //www. heritage. org/Index/

Bottom 8

Role Players in the Mixed-Market Economy • Consumers • Producers • Government – What 5 roles does the government play in our economy? • Consumer • Producer • Protector • Regulator • Provider

7 Economic & Social Goals of Mixed. Market Capitalism in the U. S. 1. 2. 3. 4. 5. 6. 7. Economic Freedom Economic Equality …of opportunity** Economic Security Economic Growth Economic Efficiency Price Stability § inflation and deflation Full Employment § Does this mean everyone has a job? § No. There is a Natural Rate of Unemployment

Characteristics of Free Enterprise Capitalism • Economic Freedom • Voluntary Exchange – who has more power, producers or consumers? • Consumer Sovereignty: The consumer drives the market – DOLLAR VOTES • “The customer is always right!” • Private Property Rights • The Tragedy of the Commons – solutions? • Profit Motive/Self-interest • Competition • Markets and Prices • Specialization/Division of Labor

Capitalism Communism

Capitalism Communism

“From each according to his ability, to each according to his needs!” • Karl Marx • Critique of the Gotha Programme, 1875

Communism 200 words - Communism: How/Why does it rise? How/Why does it fail? How could it succeed?

Characteristic Capitalism Communism Primary Economic Goal Economic Freedom Economic Equality Basis of Economy Competition Cooperation / Collectivization Resource Allocation Supply & Demand Ownership of F. O. P. Private Property Public Property Profit Motive Patriotism: The Good of Community Motivation Government Planning

Why Doesn’t It Work? • Incentive Problem • Average Test Scores Example • Soviet Tanks • Coordination Problem • 30 kids in classroom vs. 400 kids in auditorium • In one word, why doesn’t it work? GREED

“As for me, I am not a Marxist. ” Karl Marx

When CAN It Work? Opt In Small Groups

Unit 2 Review Guide – Topic List Three Production Questions Traditional Economies o Strengths o Weaknesses Market Economies o Strengths o Weaknesses Command Economies o Strengths o Weaknesses Roles of Government in Mixed Market Goals of Mixed Market Capitalism Voluntary Exchange Private Property Rights o Tragedy of the Commons Communism o Rise/Fall o When can it work? Relevant Textbook Sections: o Chapter 2