Economic Systems An economic system is how a country answers the Three Basic Economic Questions.

Economic Systems For this class, we start by looking at really BIG concepts, then get smaller, and then get BIG again. For this class, we start by looking at really BIG concepts, then get smaller, and then get BIG again. BIG Concepts- How are Countries Organized. BIG Concepts- How are Countries Organized.

What Must an Economic System Provide? Provide rules of the game & methods of enforcement. Provide rules of the game & methods of enforcement. Provide defense both locally & nationally. Provide defense both locally & nationally. Provide a signaling device to inform everyone of changes in relative scarcity. Provide a signaling device to inform everyone of changes in relative scarcity. Facilitate specialization, trade, & exchange. Facilitate specialization, trade, & exchange.

What Makes an Economic System Successful? Members can easily obtain what they want. Members can easily obtain what they want. Resources are efficiently used. Resources are efficiently used. Opportunity cost of production is minimized. Opportunity cost of production is minimized. There are few disruptions & little instability in the operation of the system. There are few disruptions & little instability in the operation of the system.

Types of Economic Systems Traditional economies: questions answered by following customs & traditions. Traditional economies: questions answered by following customs & traditions. Command economies: questions are answered by a central authority. Command economies: questions are answered by a central authority. Market economies: questions answered by individuals making their own decisions. Market economies: questions answered by individuals making their own decisions.

Traditional Economy Advantages- Stability, Rules of the game are known by everyone. Advantages- Stability, Rules of the game are known by everyone. Disadvantages- Discourages new ideas, stagnation, lower standard of living Disadvantages- Discourages new ideas, stagnation, lower standard of living

Examples of Traditional Economies

Characteristics of a Command Economy Resources are not privately owned. Resources are not privately owned. Use of resources determined by central authority. Use of resources determined by central authority. Desire to help everyone is the stated motivating force. Desire to help everyone is the stated motivating force. No signaling device to inform of changes in scarcity conditions. No signaling device to inform of changes in scarcity conditions.

Examples of a Command Economy

Characteristics of a Market Economy Private ownership of property. Private ownership of property. Individual freedom to decide how to use resources. Individual freedom to decide how to use resources. No guarantees. No guarantees. Self interest is motivating force. Self interest is motivating force. Prices signal changes in scarcity to everyone. Prices signal changes in scarcity to everyone.

Recap and Retouch notes Add any additional information you find noteworthy Add any additional information you find noteworthy

Economic and Social Goals Countries use their economic system to reach specific goals, each countries goals varies depending on their own populations.

Economic Freedom Freedom to choose your own occupations, employers, and use your money Freedom to choose your own occupations, employers, and use your money Business owners want the freedom to choose where and how they produce Business owners want the freedom to choose where and how they produce

Economic Efficiency Resources are scarce Resources are scarce Factors of Production must be used wisely Factors of Production must be used wisely More Waste = fewer goods and services. More Waste = fewer goods and services. Benefits gained must outweigh the Costs Benefits gained must outweigh the Costs

Economic Equity Economic Fairness in employment, Economic Fairness in employment, In production In production In Voluntary Exchanges (purchases) In Voluntary Exchanges (purchases)

Economic Security Economic Protection Economic Protection i.e. Social Security- ( The Federal program of disability and retirement benefits) i.e. Social Security- ( The Federal program of disability and retirement benefits) Medicare Medicare

Full Employment Provide as many jobs as possible to those who are willing and able to work Provide as many jobs as possible to those who are willing and able to work

Price Stability Keeping prices from fluctuating Keeping prices from fluctuating Controlling Inflation (a rise in the general level of prices) Controlling Inflation (a rise in the general level of prices) Controlling Interest Rates Controlling Interest Rates Fixed Income- An Income that does not increase as prices go up Fixed Income- An Income that does not increase as prices go up Economic Indicators- Economic Statistics used to measure the direction of an economy. Examples: Stock Market, Employment Index, Economic Indicators- Economic Statistics used to measure the direction of an economy. Examples: Stock Market, Employment Index,

Economic Growth Constant Improvement Constant Improvement Better Homes Better Homes Better Cars Better Cars Better Lives Better Lives

Future Goals Goals on which most people agree. Goals on which most people agree. Examples- Cleaner Environment Examples- Cleaner Environment Conservation Conservation Eliminate Poverty Eliminate Poverty Increased Industries Increased Industries

Free Enterprise Textbook definition: Competition is allowed to flourish with a minimum of government interference. Textbook definition: Competition is allowed to flourish with a minimum of government interference.

An Economy has free enterprise if it meets the following conditions. Voluntary Exchange- You as a consumer are free (more or less) to buy what you want. Nobody tells you what you can or cannot buy (I did say more or less) Voluntary Exchange- You as a consumer are free (more or less) to buy what you want. Nobody tells you what you can or cannot buy (I did say more or less) Sellers are also free to sell (more or less) what they want. Sellers are also free to sell (more or less) what they want.

Private Property Rights- You can own and control your own possessions. That means you can sell your stuff if you want to. Private Property Rights- You can own and control your own possessions. That means you can sell your stuff if you want to. BTW- As a minor, property rights are different for you, you can’t sign contracts which means you cannot buy your own car, house or have a credit card, unless you have a parent cosign. An ATM card is not considered a credit card. BTW- As a minor, property rights are different for you, you can’t sign contracts which means you cannot buy your own car, house or have a credit card, unless you have a parent cosign. An ATM card is not considered a credit card.

Profit Motive- You have the ability to make a profit on the property that you sell. Which means you have the chance to become an entrepreneur. Profit Motive- You have the ability to make a profit on the property that you sell. Which means you have the chance to become an entrepreneur.

Competition- There must be competition between both buyers and sellers. Buyers want the lowest price, sellers want the highest price. As long as there is competition between sellers, it forces them to keep prices low. Competition- There must be competition between both buyers and sellers. Buyers want the lowest price, sellers want the highest price. As long as there is competition between sellers, it forces them to keep prices low.

Role of the Government in a free enterprise system. Protect the Economy Protect the Economy Provide for the public Provide for the public Regulate competition- keep it honest Regulate competition- keep it honest Promote national goals Promote national goals

Do we have an entirely Free Market system ? Mostly yes, but we have some restrictions (You can’t buy a nuclear bomb and you can’t sell your kidney’s – its against the law) Mostly yes, but we have some restrictions (You can’t buy a nuclear bomb and you can’t sell your kidney’s – its against the law) We have mixed economy- mostly free, but also with some command and traditional aspects mixed in as well. We have mixed economy- mostly free, but also with some command and traditional aspects mixed in as well.