Economic Systems

Market Economy Market Progress: is it stressed? Highly stressed! How is choice of jobs determined? Individual preference What motivates workers to produce? High self-gain How to produce? Least cost method Who/what determines how products will be produced? Whatever is most profitable For whom are products produced? Highest bidder (whoever will pay) What are the basic values of this system? Competition, material rewards, self-gain, freedom

Command Economy Command Progress: is it stressed? To some degree How is choice of jobs determined? Government directed What motivates workers to produce? Limited social gain How to produce? Least cost method Who/what determines how products will be produced? Whatever the government decides is needed For whom are products produced? Those declared in need What are the basic values of this system? Cooperation, ‘moral’ rewards, societal gain, government decree

Traditional Economy Traditional Progress: is it stressed? Not at all How is choice of jobs determined? Custom-directed What motivates workers to produce? Traditional incentives How to produce? Traditional ways Who/what determines how products will be produced? Whatever was traditionally produced For whom are products produced? Distributed by custom What are the basic values of this system? Custom, traditional ways and beliefs

Some additional words… Mixed Economy: Combining economic principles Individuals make free economic choices with some government intervention Pure command/ pure market economies are rare (In US: government keeps competition free/ fair, protects public interest)

Some additional words on capitalism (market economy) Key ideas: consumer sovereignty; private property; profit motive; competition History of Capitalism Adam Smith: The Wealth of Nations Laissez-faire economics: government should not interfere in marketplace “Invisible hand” will keep economy running

Some additional words on command economies Socialism Government owns industry Goal = economic equality Aims for classless society Communism Karl Marx, The Communist Manifesto Society divided into two classes: capitalists who own industry; proletariat who produce goods Class struggle will lead to revolution- workers revolt, overthrow capitalists Communism: classless society; all property in common; no need for government

On 79L, write the question and then answer…. In each system, who answers the basic economic questions? Which system is best? Explain your answer.

On 79L…. Use the descriptions of the economic systems that I will hand out to you Come up with 2 advantages and 2 disadvantages of each of the 4 systems Be able to justify!