Economic Systems

Warm Up What goods should our society focus on producing? How should they be produced? Who controls that? Who should be able to consume them? Write how you would respond to each question as it relates to one basic necessity: food.

Unit 2, Lesson 1 Notes

Economic Systems Definition: The method used by a society or government to produce and distribute goods and services Which system a country employs depends on its goals and values

3 Basic Economic Questions Since resources are limited, every society must answer three basic questions: What goods and services should be produced? How should these goods and services be produced? Who should consume these goods and services?

What goods and services are to be produced? A government must decide what to produce to satisfy its needs and wants This decision involves trade-offs and opportunity cost (i.e. “guns or butter”)

How should goods and services be produced? For example, should we produce electricity with oil, solar, or nuclear power? Although there are countless ways to create what we want, LAND, LABOR, and CAPITAL are needed However, the factors of production can be COMBINED in different ways

Who should consume these goods and services? A government has to choose how to distribute the available goods and services Who should consume depends on FACTOR PAYMENTS – income people receive for supplying factors of production

What are the five goals? Define the five economic goals as provided on pages 25-27 in your texts: Efficiency Freedom Security Growth Equity

What are the characteristics of the four Economic Systems? Unit 2, Lesson 2 Notes What are the characteristics of the four Economic Systems?

Economic Systems Answer Three Questions: What to produce? How to produce? Who consumes? Based on Economic Goals: Efficiency Freedom Security Equity Growth Types: There are four types of Economic Systems

Basic Types of Economic Systems The question of WHO gets to consume these goods and services differs between ECONOMIC SYSTEMS Four different economic systems have developed to address the 3 key economic questions: Traditional Command Market Capital

In a group, complete a “web” on one of the types of economies. Traditional, Command, Market, Capital In a group, complete a “web” on one of the types of economies. Describe the economy in detail. Features, advantages, disadvantages, what economic goals may be important to them. Provide examples of countries with that type.

Traditional System Economic decisions based on custom, religion, and/or ritual (no innovation or change) Most often subsistence living w/ barter and trade among close-knit groups and families Ex: Aborigines, Inuit (Eskimos), some tribes in Africa & S. America

Market System Economic decisions are made by individuals and are based on trade Aka: Capitalism, Free Enterprise System Businesses operate for profit with limited government regulations/intervention Control of resources and economic decision making is widely dispersed Profit motive drives the economy

Command System The government alone decides most economic decisions (what, how, for whom to produce) The government controls almost all resources. Profit motive does NOT drive the economy, government goals do. Limited or no private businesses Aka: Planned economies, Socialism Ex: Communist regimes; USSR, Cuba, North Korea

Mixed-Economy System Most economies do not fit into one of these categories completely Most of the time, no single economic system has all of the answers either This approach allows for the inclusion of several ideas into economic systems The range in systems can be from closer to government dominated (command / centrally planned) to market dominated (market / free enterprise)

Today’s Economies Mixed Economies England Japan China France Cuba Vietnam N. Korea USA Pure Free Market Command Gov’t Controlled Iraq India

Where we Are Mixed System Free Enterprise: Private or corporate ownership of capital goods. Investments in firms are made in a free market by private decision. High level of economic system