Every society must ask: What should be produced? How should they be produced? Who will receive the goods and services that are produced? Four Answers: An Economy can be: Traditional Market Command Mixed

Economic Systems: Who decides? Traditional: Family-based customs Market: The individual consumer Command: Decided on by Government

Four Economic Systems or Mechanisms Type Who owns the means of production? Who decides what will be produced and consumed? Examples Traditional Varies: family, village, tribe, individual Customs and norms Subsistence agriculture, hunter/gatherer society Market Owned by individuals, e.g, stockholding corporations, etc. Consumer demand Markets in U.S., e.g., retail, fast food Command Owned by government Centralized planning, quotas and price controls Former Soviet Union Mixed Government and individuals Mixture of government planning and private initiative People’s Republic of China, Many sectors of U.S. economy

Adam Smith’s “Invisible Hand” Adam Smith, The Wealth of Nations, 1776 “The businessman intends only his own gain; however, he is in this led by an invisible hand to promote an end which was not part of his intention. By pursuing his own interest, he frequently promotes that of society more effectually than when he really intends to promote it.”

The Road to Wealth: market oriented Private property Profit motive Laws of supply and demand drive price changes Government should stay out of the market except for preventing monopolies or regulating them Providing public goods

Is it good to be selfish?

The Road to Wealth: Command-oriented A. government should own and regulate factors of production B. five year plans C. Prices are regulated D. Property is owned by the government

Traditional, Market, and Command (government) mechanisms Select two economic phenomena: one micro and macro Briefly state each one and then consider the traditional, market, and command mechanism that drive each one, and third, consider changes that are altering the dynamics among the three. Example: Micro: Three mechanisms and going to the movies Micro: How can I pay for my college education? Macro: Who should take care of the elderly?