COMPARATIVE ECONOMIC SYSTEMS ECONOMICS IN WORLD HISTORY

ECONOMIC JOKE What is the economic “Golden Rule”? Answer: “He who has the ‘gold’ makes the rules!

Vocabulary Economics Economic systems Scarcity Capital Entrepreneur Barter Demand subsistence farming standard of living Gross Domestic Product (GDP) Supply Labor Resources Innovations Per Capita Income Literacy rate Aristocrat Authoritarian

ECONOMIC DEFINITION Economics is a Greek word meaning “management of the household.” In the ancient world, this was considered women’s work and the word is feminine in Greek. But the world over, women made the cloth and silk traded.

BASIC ECONOMICS Economics is the study of scarcity and how societies make economic decisions. In life, wants are unlimited and resources are limited. The result is scarcity.

BASIC ECONOMICS All societies make four basic economic decisions. 1. What to produce? 2. For whom to produce? 3. How much to produce? 4. How to distribute the produce?

Economists Karl Marx was the first philosopher or economist to see all societal structures in an economic perspective. He felt you could not understand a system without understanding who owned the means (factors) of production. Adam Smith was the founding father of capitalism or free market economics. John Maynard Keynes was the founder of fiscal economics. The difference between the two was the role and influence of the state in economics.

FACTORS OF PRODUCTION All Societies use the four factors of production to meet their needs. 1. Land 2. Labor 3. Capital 4. Entrepreneurship

LAND Land represents the physical natural resources that the land possesses, its quality and its quantity. Land can be the dirt, the trees, the raw minerals, the water, or the food grown. Land earns rent in economic terms. All states possess “land.”

LAND EXERCISE In economic terms, describe the “land” of the river valley civilizations. In Economic terms describe “land” In terms of a plantation.

LABOR Labor represents the number of people in a society who can do the physical labor. Labor is literally muscle power. If society uses mostly manpower to produce its needs, this is called labor intensive. Labor earns wages.

LABOR EXERCISE In the economic terms of labor, describe “work” in The Early River Valley Civilizations, In economic terms of labor describe “work” on a plantation.

CAPITAL Capital is not money. It represents the tools that societies use to produce their needs. All societies have capital as well as labor. If capital is used more extensively in a society than is physical labor, the society is capital intensive. Capital earns interest.

CAPITAL EXERCISE In economic terms, what is the capital of a(n) A fast-food business?

ENTREPRENEURSHIP Entrepreneurship represents the economic equivalent of brain power and tendency to innovate. Not all societies encourage entrepreneurship, while others reward it. This is sometimes called intellectual capital and earns profit! Trade is entrepreneurial.

EXERCISE Entrepreneurship involves innovation and invention! Do you think the Early River Valley Civilizations encouraged innovation? Why or why not? think of five examples of entrepreneurship in society today, And explain why.

Economic systems and indicaters Economic systems are determined by economic indicators. GDP Literacy rate Live birth rate Four economic systems Traditional Economy Market Economy Command Economy Mixed Economy Life expectancy T.V. per household

TRADITIONAL SYSTEMS In a traditional economic system, people make decisions based on their traditions and how earlier generations made decisions. Most often the elderly and clans make decisions for the good of those who constitute the “group.”

TRADITIONAL SYSTEMS In a traditional economic system, land is the major input. What you do not have, you do not have. Economies are subsistence, work is labor intensive - more work means more produce. Capital is simple or animal in nature and entrepreneurs are considered suspect.

TRADITIONAL SOCIETIES Are the Early River Valley Civilizations Traditional? What about the Early Empires? Why or Why not? Where are a majority of traditional economies located today?

COMMAND ECONOMY In a command economy, decisions are made largely by an authority such as an aristocrat or a central government planning authority. It can be exercised in democratic or authoritarian societies. Quotas and restrictions are common.

COMMAND ECONOMY What ancient economies were largely command? What 20th century societies are or were command economies?

COMMAND ECONOMY Why does a war-time economy have to be command? Why would an economic crisis warrant a command economy? Can you name some historical examples?

MARKET ECONOMIES Market economies are sometimes called free markets. They represent decentralized decision making that is reflected in the unencumbered interplay of supply, demand, and price for goods and services No one is powerful enough to control the market.

MARKET ECONOMIES Market economies can only exist where goods are plentiful, have many close substitutes, and no restrictions on exchange. This is free trade. Additionally, consumers have many choices and no one choice is better than another.

MARKET ECONOMIES Several of the key ideological components of market economies are the rights to own private property (capital) and to dispose of it in any way you want to make profits without restrictions. “Land” is sold to the highest bidder and labor seeks a fair wage.

MARKET ECONOMIES Based on the previous definition, do market economies exist? If so, under what conditions? Would you consider the United States a market economy? Why or why not?

MARKET ECONOMIES What is a black market? Why might one be considered a “free market” economy? What might the Drug Trade be considered a “market” economy?

MIXED SYSTEMS all all economic systems throughout history have been or are mixed to some lesser or greater degree.

MIXED EXERCISE Can you identify why the picture is mixed