1. SSEF4a – Compare command, market, and mixed economic systems with regard to private ownership, profit motive, consumer sovereignty, competition, and government regulation 1 Economic Systems

2. Scarcity Means There Is Not Enough For Everyone Government must step in to help allocate (distribute) resources 2

3. Scarcity Bus Ride S cenario: A group of 40 college students get on a bus to go to a dance 30 miles away. Shortly after leaving, the bus finds that it is too heavy to go over a large hill 10 students need to get off the bus You and your partner need to find 5 different ways to decide who should get off the bus. 1.Are any of the solutions fair? 2.How are resources allocated in communism? 3.How are resources allocated in capitalism? 4.What role do prices play in capitalism? 3

4. Every society must answer three questions: The Three Economic Questions 1.What goods and services should be produced? 2.How should these goods and services be produced? 3.Who consumes these goods and services? The way these questions are answered determines the economic system An economic system is the method used by a society to produce and distribute goods and services. 4

5. Types of Economics Systems Economics Systems 1. Command 2. Market 3. Mixed-Market

6. Command Economies (aka Communism) 6

7. Command Economies In a command economy (communism) the government… 1.owns all the resources. 2.answers the three economic questions Examples: Cuba, North Korea, former Soviet Union, and China? Why do command economies face problems of poor-quality goods, shortages, and unhappy citizens? NO PROFIT MEANS NO INCENTIVE TO WORK HARDER!! 7

8. Irrational Soviet Production Soviet companies were not guided by prices or profit. Gov’t officials determined output quotas based on quantitative measurements. Businesses were paid based on meeting these quotas. 1.Why did a business make desk lamps that were filled with lead that were almost too heavy to carry? 2.Why did light bulb producers only make tiny night light size bulbs? 3.Why did oil companies drill many shallow holes when they knew that oil deposits are usually found in deep holes that require slower drilling? 4.Why did a construction superintendent order his workers to remove bathtubs from the first floor and install them in the third floor while he slowly lead inspectors through apartment building. 5.Why did black market vendors sell burned out light bulbs? 8 Production quota based on weight Production quota based number of bulbs produced Production quota based number of feet drilled Quota on # of apartments complete at inspection Business got resources before the public so workers would steal good light bulbs from work and replace them with burnt out bulbs

9. Advantages and Disadvantages 1.Low unemployment- everyone has a job 2.Great Job Security- the government doesn’t go out of business 3.Equal incomes means no extremely poor people 4.Free Health Care What is GOOD about command economies? What is BAD about command economies? 1.No incentive to work harder 2.No incentive to innovate or come up with good ideas 3.No Competition keeps quality of goods poor. 4.Corrupt leaders 5.Few individual freedoms (consumer sovereignty/choice) 9

10. Market System (aka Capitalism) 10

11. Characteristics of a Market Economy 1.Little government involvement in the economy. (Laissez Faire = Let it be) 2.Individuals OWN resources and answer the three economic questions. 3.The opportunity to make PROFIT gives people INCENTIVE to produce quality items efficiently. 4.Wide variety of goods available to consumers. 5.Competition and Self-Interest work together to regulate the economy (keep prices down and quality up). Reword for Communism 11

12. Example of Market Economy Example of how the free market regulates itself: If consumers want computers and only one company is making them… Other businesses have the INCENTIVE to start making computers to earn PROFIT. This leads to more COMPETITION…. Which means lower prices, better quality, and more product variety. We produce the goods and services that society wants because “resources follow profits”. The End Result: Most efficient production of the goods that consumers want, produced at the lowest prices and the highest quality. 12

13. Example of Communism Example of why communism failed: If consumers want computers and only one company is making them… Other businesses CANNOT start making computers. There is NO COMPETITION…. Which means higher prices, lower quality, and less product variety. More computers will not be made until the government decides to create a new factory. The End Result: There is a shortage of goods that consumers want, produced at the highest prices and the lowest quality. 13

14. The Invisible Hand The concept that society’s goals will be met as individuals seek their own self-interest. Example: Society wants fuel efficient cars… Profit seeking producers will make more. Competition between firms results in low prices, high quality, and greater efficiency. The government doesn’t need to get involved since the needs of society are automatically met. Competition and self-interest act as an invisible hand that regulates the free market. 14

15. Attacks Against Capitalism 15

16. 16 1.Companies are greedy and do anything to screw over consumers! Companies have an incentive to satisfy the needs of consumers. If they don’t they will go out of business. 2.Capitalism causes companies to outsource US jobs overseas. America suffers because companies want more profit! How many of you lost your job to outsourcing? How many of you benefit in the form of lower prices? 3.Capitalism only helps the rich. US companies enslave and exploit third-world workers in sweatshops! Sweatshop workers are not forced labor. They make the decision to work there voluntarily. Why? Although the working conditions are far below US standards, working in a sweatshop is better that the alternative Sweatshop wages in Vietnam, Honduras, and Nicaragua are more than double the country’s average wage. Attacks Against Capitalism

17. Sweatshops 17 Sweatshops Then Sweatshops Now Question: Who is to blame for these people being so poor? Answer: Low productivity. If a country doesn’t produce very much, it can’t afford to pay it’s workers very much. Why do these countries have such low productivity? Corrupt governments, inadequate physical capital and infrastructure, and underdeveloped human capital. What does foreign investment bring to poor countries? "My concern is not that there are too many sweatshops, but that there are too few." -Jeffrey Sachs, Harvard University

18. Productivity Creates Wealth 18 Less Developed Countries Developed Countries

19. Mixed-Market System 19

20. Mixed Economy A mixed economy has elements of both market and command economies Individual buyers and sellers often have the right to decide how scarce resources are allocated The government plays a role when needed Market system Government Mixed- market Economy

21. Resolving Market Failures A market failure is a situation where markets fail to allocate resources efficiently. Command No market failures No markets Mixed The government regulates Market Buyers and sellers Survival of the fittest

22. Connection to the PPC Communism in the Long Run Free Markets in the Long Run Consumer goods Capital Goods CURRENT CURVE FUTURE CURVE Consumer goods Capital Goods FUTURE CURVE CURRENT CURVE Costa Rica Cuba 22

23. The difference between North and South Korea at night. North Korea's GDP is $40 Billion South Korea's GDP is $1.3 Trillion (32 times greater).

24. Activity: Create a flyer for both a COMMAND Economy AND a MARKET Economy Explain each system clearly Tell me the advantages of each (at least 3) Tell me the disadvantages of each (3 again) Must be neat, organized, and wall worthy 24

25. Social Goals of Economic Systems

26. The right to choose your own occupation, employer, and use of your money. Business owners have the right to produce what they want and how much they want. Measurement: Corporate profits, GNP, GDP, and Unemployment Economic Freedom

27. Equity mean fairness –Illegal to discriminate based on age, race, sex, or disbility –False Advertising, unfair pricing, and dangerous products prohibited Measurement: Unemployment, # of discrimination cases, minimum wage Economic Equity

28. Protection from layoffs and illness Measurement: Welfare total recipients, social security expenditures, and unemployment rate Economic Security

29. If people cannot work they cannot support their family. Society is hurt. Unemployment reduces efficiency Unemployed people must rely on others for support (family, friends, gov’t, etc.) Measurement: Unemployment rate Full Employment

30. Inflation is a rise in the general level of prices Inflation reduces every person’s buying power Inflation is especially difficult for people on fixed incomes (those that do not rise as prices rise) Inflation hurts savers Measurement: Consumer Price Index (CPI) Price Stability

31. Necessary to satisfy the needs and wants of a growing population Do you want your children to live better than you? Do you want to improve the quality of medical care? Transportation? (etc.) –To do this requires economics growth. Measurement: GNP, Corporate profits, Dow Jones Industrial Average Economic Growth

32. GoalCommandMarket/Mixed- Market Economic Freedom Economic Equity Economic Security Full Employment Price Stability Economic Growth Economic Goals by System

33. GoalCommandMarket/Mixed- Market Economic Freedom √ Equity Efficiency Economic Security Full Employment Price Stability Economic Growth Economic Goals by System

34. GoalCommandMarket/Mixed- Market Economic Freedom √ Economic Equity √ Economic Security Full Employment Price Stability Economic Growth Economic Goals by System

35. GoalCommandMarket/Mixed- Market Economic Freedom √ Economic Equity √ Economic Security √ Full Employment Price Stability Economic Growth Economic Goals by System

36. GoalCommandMarket/Mixed- Market Economic Freedom √ Economic Equity √ Economic Security √ Full Employment √ Price Stability Economic Growth Economic Goals by System

37. GoalCommandMarket/Mixed- Market Economic Freedom √ Economic Equity √ Economic Security √ Full Employment √ Price Stability √ Economic Growth Economic Goals by System

38. GoalCommandMarket/Mixed- Market Economic Freedom √ Economic Equity √ Economic Security √ Full Employment √ Price Stability √ Economic Growth √ Economic Goals by System