Advantages Close-knit community Precisely defined roles in society Standard production methods: thy know exactly how to produce what they need with available resources Tradition dictates who gets the first pick of the resources. Traditions play a stabilizing role in our lives
List some traditional societies in the United States. See if you can come up with more than three!
Disadvantages Traditional economy do not allow for much economic growth and development. Changes are slow and there is little social mobility. Technological innovation and promotion of intellectual and scientific development are not encouraged. There are few incentives for entrepreneurs, thus limiting choices for consumers and lowering standards of living.
Description A command economy plans out in detail economic decisions, which are made by a central government authority. The plan is implemented through laws, regulations and directives. Businesses follow production and hiring targets instead of individually and freely responding to the laws of supply and demand. Central planners seek to replace the forces that operate in a free market economy, and the customs that guide a traditional economy, to attain specific societal goals.
Advantages Equality is the focus. The government tries to eliminate all private property and distribute its goods equally. No one is in poverty and no one is wealthier than another. Social services are emphasized in this type of economy. The government will provides equal health care, education opportunities, and makes sure all people are fed. It is capable of rapid change for major problems. The government owns the companies, so if production needs need to be shifted into a different area, the government is able to do it very quickly. A final major advantage of command economies is that they are very stable. Command economies will never have sudden depressions.
Disadvantages In command economies there is very little freedom. The individual usually does not have the opportunities to decide what they want to do for a career, and they have no control over the goods they receive. There is little reason to innovate, work hard, or check quality of the work. Since no one makes more money than anyone else, the people feel like there is no incentive to work hard. Little focus on consumer wants. The centralized government has a hard time coping with minor day-to-day changes.
Can parts of the US Economy have characteristics of a Command Economy at times?
Market Economy Characterized by freedom People choose what they wish to buy and how much Market economies are based on the idea of capitalism, in which people own the means of production and have private ownership of property. Capitalism is the means of production, and market economy is where the exchange of goods and services happens
Advantages Many individual freedoms Gradual adjustment to change Lack of government interference Decentralized decision-making Huge variety of goods and services Consumer satisfaction
Disadvantages Rewards only productive resources: does not value those who cannot work: the old, the young, disabled, sick, unemployed for whatever reason Public goods are often neglected Uncertainty for workers and businesses from competition and change Everything has a dollar value
Examples of pure free enterprise systems There are no absolute examples of a pure free enterprise system in the world today. This is subject to change. Some people say that Somalia is a completely unregulated free marked currently The US has a modified free enterprise system, or mixed economy Most countries are moving to a mixed system
Mixed economic systems Most economies in the world are moving toward a mixed economic system These are a blend of the three systems: Traditional, Command, and Free Enterprise in order to try to fulfill the demands of society The blends are a mix of three systems that exist along the spectrum of mixed economies from command to free enterprise.
Different countries make different decisions about where on the spectrum they should fall What are some commodities that the government acting as the representative of the people can provide more efficiently than a private individual or corporation? What do some possible public goods that other countries provide to their citizens that the United States does not provide? What are some public goods that the United States provides to her citizens that other countries do not?
Role of Government Governments provide public goods and services that individuals acting alone could not provide efficiently. Things like roads, the military, and education are services that the government helps to fund. It would be too expensive for private business to provide these services to the public.
See overhead for slide Do Exercises 52 and 53 on role of government
What is a public good? An item whose consumption is not decided by the individual consumer but by society as a whole, and which is financed by taxation. A public good (or service) may be consumed usually without reducing the amount available for others, and cannot be withheld from those who do not pay for it. Public goods (and services) include economic statistics and other information, law enforcement, national defense, parks, and other things for the use and benefit of all. No ‘market’ exists for such goods, and they are provided to everyone by governments. See also good and private good.
The Constitution and Government The Continental Congress’ lack of taxation and borrowing powers nearly lost the Revolutionary War, so the writers of the Constitution immediately established Congress’ powers to do both. Large portions of the Constitution are designed to do nothing more and nothing less than to create the basis for a sound economy. The Constitution also (and importantly through its impact on the nation’s economy) created the basis for a true unification of the states into a nation. The Founders clearly recognized both the potential economic benefits and costs of government actions, and sought to design a document that would enhance those benefits and reduce those costs.
Role of Government The government promotes and regulates competition. Ways the government promotes marketplace competition Enforcing antitrust legislation to discourage the development of monopolies Engaging in global trade Supporting business start-ups
Role of Government How do governments produce public goods and services? Through tax revenue Through borrowed funds
Role of the Government How does government spending affect economic activity? Increased government spending increases demand, which may increase employment and production; decreased spending reduces demand, which may result in a slowing of the economy. Increased government spending may result in higher taxes; decreased government spending may result in lower taxes.
Role of the Government What is the role of the United States government in protecting consumer rights and property rights? Individuals have the right of private ownership, which is protected by negotiated contracts that are enforceable by law. Government agencies establish guidelines that protect public health and safety. Consumers may take legal action against violations of consumer rights.