Economic Systems Traditional Economy

We Need A System We know the there are limited resources and everybody needs to deal with the problem of scarcity. So what kind of systems have we developed to deal with this?

Traditional Economy

Traditional Economy Overall goal is survival It is about the group, what the individual wants is really not important.

Advantages of a Traditional Economy Everyone knows their role. Life is generally predictable and stable. Almost everyone is taken care of, provided you are doing your part.

Disadvantages of a Traditional Economy This system resists change. It has been the same for thousands of years. This lack of progress leads to a lower standard of living.

Command Economy

Command Economy Government decides what goods and services are produced. Individual consumers are not considered It is what the government thinks you need

Advantages In A Command Economy Everybody has a job. The Economy can change direction quickly.

Disadvantages In A Command Economy This system in not designed to meet the “wants” of consumers. The basic incentive of this system is to do just enough to meet quotas.

Market Economy

Market Economy It is all about the consumer and individual choice As a consumer you make decisions based on you own economic interests.

Advantages of a Market Economy High degree of individual freedom Relatively small degree of government interference (Mixed Economy) Seemingly unlimited variety of goods and services available to the consumers.

Disadvantages of a Market Economy The government does not provide for the basic needs of everyone. The government does not provide certain services that people value.

Which Economic System Are We? Mixed Economy Capitalism Based on 4 Important Principles - Private Property - Freedom of Choice - Profit - Competition

Fundamentals of a Market Economy Private property rights - rights of individuals and groups to own property. Market – any place or situation in which people buy and sell resources and goods and services. Property rights are enforced by law Would this system work if buyers could not trust sellers?

Limited Government Laissez faire – French term meaning “leave things along”. Should the government leave the markets alone? How does the government protect people from the market?

Voluntary Exchange Two parties involved make an exchange usually a good or service for money. This is guided by self interest

Consumer has the power A consumer can buy whatever they want. This creates competition within a market Self Interest – Both the buyer and seller use self interest to get what they want.

Specialization People do what they do best A teacher can make money by teaching but how can he or she get groceries for the week. Instead of growing them we go to the store with money earned by teaching and buy groceries.

Circular Flow Model

This shows how households and business meet in a market economy.

Product Market Market for goods and services The suppliers of this market are businesses The goods are sold for money (profit) which keep the businesses going

Factor Market This market is where businesses go to get things for production This means the factors of production. We are included in this. We are the laborers, land owners, owners of capital. We get income for doing this Firms get resources from the product market which are used to produce goods.

Mixed Economy Most common economic system in the world. It has elements of all three systems In a mixed economy one of the three systems dominates and is the most prevalent in that economy. The U.S. is a mixed economy, which of the three systems does the U.S. use the most?

How does the U.S. use each system? Traditional Command Market

The free market has led to some interesting products!

What about other countries?

What’s the debate about Socialism?

Sweden Government pays for… Child care ages 1-5 School ages 6-16 More schooling and college if you want to go Health care Dental Pensions Time off for raising a family

Sweden How do they pay for this? Citizens in Sweden pay about 60% of their income in taxes.

Politics of A Market Economy Politicians need your vote An almost endless amount of research goes into how people are likely to vote based on who they are, and how they live. If the researchers do their job correctly they will know who you will vote for before you enter the booth.