12/5 Warm-Ups Pass forward 26.2 1. In which market do firms purchase the factors of production from households? 2. Which market supplies households with goods and services? Bonus Questions- Charlotte is competing with several other major cities for a contract with which industry? (hint, they’re in the transportation business)

Most missed ?’s Why are all goods and services scarce? What is total revenue minus total cost? Who owns factors of production in a market economy? Can you have a cost if you don’t produce anything? Why? Why would money flow from firms to households?

Four Types of Economies chart on p. 225 Objective: to differentiate between the various types of economies through completion of comparison chart.

TYPES OF ECONOMIES Economic system is a an agreed upon procedure within and among communities to organize the production and distribution of goods and service.

Traditional Economy Definition: Economic system that relies on habit and custom “That is the way we have always done it”

Traditional Economy How are the three economic questions answered? By tradition Growth Not concerned with growth (bartering is used) Who / What influences the economy? Tradition

Traditional Economy Examples: very isolated tribes Amish Who loses power in this type of economy? Political Philosophy and People n/a Does not apply to traditional economies

Command Economy (Centrally planned) Definition: Central government makes all decision on the production and consumption of goods and services. “We do what we are told”

Command Economy Growth Government has complete control How are the three economic questions answered? Whatever the govt. decides is needed at the least cost Growth Slow growth, inefficient Who / What influences the economy? Government has complete control

Command Economy Examples: Cuba, North Korea, Iran 1920-1991 Soviet Union

Command Economy Who loses power in this type of economy? Political Philosophy and People Citizens Communism Karl Marx Socialism

Karl Marx p. 226 Marx was born in Germany in 1818 and died in London in 1883. He was a philosopher and political economist but was known best as a revolutionary communist. Marx along with Friedrich Engels wrote the Communist Manifesto.

Communist Manifesto History should be described as social classes struggling with one another 19th Century social classes Proletariat – those that own very little and therefore must sell labor to the capitalists Bourgeois (capitalists) – the person that owns the factories and buys labor

Communist Manifesto (continued) The conflict between these two classes will eventually lead to revolution by the working class (proletariat). With this revolution there would cease to be a struggle. “ Workers of all lands, unite” – the final words of the Communist Manifesto This document lays out the foundations of communism.

Since the collapse of the Soviet Union, few countries would describe themselves as having a Marxist government. Political parties throughout the world still maintain Marxist ideologies. Despite Marx’s predictions, capitalism is still thriving! We still see the existence of a working class and entrepreneurs.

Contemporary Communims: Its Status and Future

Korean Peninsula From Space

Communism for Kiddies? Smurfs

Market Economy Definition: Economic system in which all economic decisions are made by the citizens “Make as much as we want”

Market Economy Growth Successful and efficient Citizens How are the three econ. questions answered? What? – most profitable How? – least cost method For Whom? – Highest bidder Growth Successful and efficient Who / What influences the economy? Citizens Supply and demand Competition Invisible Hand

Market Economy Examples: United States, Singapore, Hong Kong

Market Economy Government Capitalism Adam Smith Who loses power in this type of economy? Political Philosophy and People Government Capitalism Adam Smith

Mixed Economy All economies of the world are mixed….. There are no true command or completely free market economies… Definition: Market based economies in which govt. plays a limited role

Mixed Economy Govt. and Citizens Growth varies How are the three economic questions answered? Govt. and Citizens Growth varies Who / What influences the economy? Part citizen / part govt.

Mixed Economy Examples: (technically every country is, to a degree, mixed) including: *United States *France *United Kingdom *Canada

Mixed Economy varies John Maynard Keynes Who loses power in this type of economy? Political Philosophy and People varies John Maynard Keynes

Mixed Economies: 229 Objective: to identify the characteristics of a mixed economy through class notes and discussion

Mixed Economies Review….. What are the 3 Economic questions? What goods and services should be produced? How should these goods and services be produced? For whom should these goods and services be produced?

Mixed Economy COMMAND______________________________MARKET Communism Capitalism Socialism Free Market Centrally Planned/Controlled Free Enterprise Authoritarian Profit Enterprise Limited social gain Individual preference of jobs Government directed Progress is stressed Factors of production gov’t owned High self-gain No self-interest or competition Competition Material rewards GOV’T CONTROL FREEDOM North Korea China France US Singapore Cuba

Mixed Economy Most contemporary economies are a blend of market with some government interference Remember…..What does laissez-faire mean????

Mixed Economy - There IS a need for certain government interference because some needs and wants of society are difficult to address in the market place (Could the market place provide for national defense or a highway system??)

Mixed Economy - Some needs that markets could meet fall to the government so that ALL members of society can participate (i.e. education) - Governments create laws to protect property rights and enforce contracts (Why would someone develop a new product if they couldn’t patent the product?)

Mixed Economies - Societies must look at whether their goals could be better addressed by an open market or government action and look at the opportunity cost for each action (Are you willing to pay taxes to fund an army?? Give all people an education??)

Mixed Economies Circular Flow Diagram Remember the circular flow diagram we looked at in Goal 7??? What were the two different markets in this flow? Who were the two major players in this flow?

Market Economy Circular Flow monetary flow physical flow Circular Flow Diagram of a Market Economy Households Firms Households pay firms for goods and services. Product Market Firms supply households with goods and services. Households supply firms with land, labor, and capital Firms pay households for land, labor, and capital. Factor Market

Mixed Economies Circular Flow Diagram Adding the government…. -Governments purchase land, labor, and capital from households in the factor market -Governments purchase goods and services in the product market (buildings, office supplies, phones, computers, etc.) -Governments provide goods and services by combining resources through the product market (i.e. roads) -Governments collect taxes from both households and businesses

Mixed Economies Circular Flow Diagram monetary flow physical flow Circular Flow Diagram of a Mixed Economy Households Firms taxes government purchases Government expenditures government-owned factors taxes

Mixed Economies Comparing Mixed Economies Free enterprise: economic system characterized by private or corporate ownership of capital goods; investments are determined by private decision rather than state control Transition: a period of change in which an economy moves away from central planning toward a market-based system China

Mixed Economies Privatized: to make a transition, state firms must sell their businesses to individuals and then allow them to compete with one another in the marketplace THE US HAS A FREE ENTERPRISE SYSTEM!! -Government interferes to provide services, keep order, and promote the general welfare -US law protects private property

Test Corrections and Homework Write the question and the complete answer (not just the letter) or rewrite the question and answer in a complete sentence. P. 231 reading guide 21.1 and 21.2

Origami Foldable Use the distributed handout as your guide You will need 4 colored pieces of paper You will need 3 white pieces of paper TOP Fold like this – 3 times per square…… Left top Rt top Left bottom Rt bottom Bottom