What makes an economic system?

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Presentation transcript:

Ohio Wesleyan University Goran Skosples Ohio Wesleyan University Goran Skosples 2. Definition and Classification of Economic Systems

What makes an economic system? What are the dimensions (institutions) of an economic system? How are these institutions important? Examples of economic systems

Economic Systems institutional approach to defining and classifying ES’s “rules of the game” also includes means of ___________ An economic system is a set of ___________ and __________ for decision making and the implementation of decisions concerning production, income, and consumption within a given area. (p.19)

Classification of Economic Systems Five main institutions: decision-making: coordinating mechanism: property rights: incentive system public choice and objectives:

2. Coordinating mechanism 1. Decision-making centralization vs. decentralization 2. Coordinating mechanism The method of coordinating decisions regarding allocation and distribution of G&S’s command vs. market

3. Property rights ownership of property and the role of individual rights control an asset receive and keep income transfer ownership private vs. public ownership are private rights complete? other aspects of individual rights

_____________ problem 4. Incentive system _____________ problem How do you motivate people? agent’s influence over outcomes principal’s ability to check performance agent’s rewards Types of incentives: ________ – appeal to emotions such as compassion, nationalism ________ – piece rates, bonuses, advancement ________ – actual or threatened force; supervision, whips

5. Public choice and objectives economic, ideological, and political arrangements for making public choices: level of income, output growth, structure of output income distribution and redistribution – equity vs. efficiency poverty programs, unemployment, medical insurance, minimum wages… environmental concerns, military power

many possible combinations with 5 dimensions (institutions) if 2 outcomes for each: 2^5 = if 3 outcomes for each: 3^5 = Two basic archetypes of economic systems: Market Capitalism Planned Socialism What can you say about each of the five institutions in each of these economic systems? Can you name some other economic systems?