Bell Ringer Explain how in a peoples decisions act as “dollar” votes.

Economic Systems Chapter 2, Section 1 What economic system is being employed here?

Objectives Students will be able to: - Describe the characteristics of the traditional, command, and market economic systems. - Explain the advantages and disadvantages of the traditional, command, and market economies.

Economic system The organized way that a society provides for the wants and needs of their people.

Traditional Economy - Allocation of scarce resources is determined by ritual, habit or custom. - Skills passed from generation to generation

Traditional: Advantages WHAT answered  jobs are inherited HOW answered  same goods FOR WHOM answered  shared benefit Sets forth certain economic roles for all members of the community Stable, predictable and continuous life

Traditional: Disadvantages 1. Discourages new ideas and new ways of doing things 2. Stagnation and lack of progress 3. Lower standard of living

Traditional: Summary Advantages - 3 questions answered by tradition - Stable, predictable and continuous life Disadvantages - Resistant to change - Stagnation and lack of progress - Lower standard of living

Command Economy A central authority answers WHAT, HOW, and FOR WHOM. The people have little, if any say, over how the basic economic institutions are answered. Examples: North Korea and Cuba

Command: Advantages Centralized decision making 1. Capable of dramatic change in a short time 2. Little uncertainty over choice of career, where to work, or losing job. 3. Education, health and other public services at little or no cost.*

Command: Disadvantages 1. Does not meet wants and needs of consumers 2. Lacks effective incentives to get people to work 3. Requires large bureaucracy, which consumes resources 4. Has little flexibility to deal with small, day to day changes. 5. New ideas discouraged, no room for individuality

Command: Summary Advantages Capable of dramatic change in a short time Can change direction quickly Little uncertainty over choice of career, where to work, or losing job. Education, health and other public services at little or no cost. Disadvantages Does not meet wants of consumers Lacks effective incentives Requires large bureaucracy Has little flexibility New ideas discouraged, no room for individuality

Market Economy People and private firms act in their own best interests to answer the 3 economic questions.

Advantages: Market Economy 1. Able to adjust to change gradually Other Economies on Change: Traditional: Discouraged, none at all “change is the destruction of our culture” Command: Delayed b/c of bureaucracy or sudden b/c forced on people.

Advantages: Market Economy 2. High degree of individual freedom Individuals decide the answers to the 3 Questions Q: How important would individuals in a traditional economy feel about individual freedom? In a command economy?

Advantages: Market Economy 3. Small degree of government interference because it interferes with competition. - Except for important concerns such as national defense and environmental protection. Does the artist believe that tariffs are necessary for steel production?

Advantages: Market Economy 4. Decision making is decentralized - Every individual makes economic decisions so everyone has a voice in how the economy runs.

Advantages: Market Economy 5. Incredible variety of goods and services Q: Agree or Disagree? “Almost any product can and will be produced if it can be imagined”

Buy me!!!

6. High degree of consumer satisfaction 51% of people can want blue shirts 49% of people can want white shirts Unlike an election, majority and minority can get what they want. Advantages: Market Economy

1.Does not provide for the basic needs of every- one in society Disadvantages: Market Economy Too old, too sick, too poor, too bad!

Disadvantages: Market Economy 2. Does not provide enough of the services that people value highly (private producers concentrate on providing products that they can sell)

Disadvantages: Market Economy 3. High degree of uncertainty - workers worry about losing jobs, benefits - employers worry about another company will produce a better, cheaper product and lose business

Disadvantages: Market Economy 4. Must guard against market failure. Markets can fail if three conditions are not met. 1. Markets must be competitive, (competition forces improved value which should lower price)

Second Guard Against Market Failure 2. Resources must be free to move. Workers (your labor is a resource) must be able to change jobs if they have a better opportunity elsewhere.

Third Guard Against Market Failure Consumers need access to adequate information so that they can weigh the alternatives and make wise choices. Q: Is advertising not adequate information?

Market: Summary Advantages: 1. Able to adjust to change gradually 2. High individual freedom 3. Lack of government interference 4. Decentralized decision making 5. Incredible decision making 6. High consumer satisfaction Disadvantages: 1. Rewards only productive resources; does not provide for too old, too sick to work 2. Workers and business face uncertainty as a result of competition 3. Does not produce enough public goods such as defense, universal health care 4. Must guard against market failure

Task: Venn Diagram Construction Construct Venn diagrams finding the similarities and differences between the each possible pair of the economic systems. 1. Traditional-command 2. Command-market 3. Traditional-market