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Economic Systems
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Key Vocabulary to Basic Economics Production- the making of goods Distribution- passing out goods Consumption- the use of goods Goods- Products people use Services- Things people do for others
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Economies vary when it comes to government involvement. The relationship between government and the economy has been debated since America’s historical beginnings. Main Idea
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What role should a government play in an economy? Essential Question
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Economic Systems How a country’s economy is organized –Because of the problem of scarcity, every country needs a system to determine how to use its productive resources An economic system must answer 3 basic questions…
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What goods and services will be produced? Who will be responsible for producing the goods and services? How will the goods and services be distributed to the consumers? The way a society answers these questions determines its economic system.
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Economic System It is the way resources (factors of production) are controlled within a nation and how they are distributed among the nation. How these factors of production are controlled and distributed defines the economic system
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Economies of the World - 2008 According to this map, which are amongst the world’s wealthiest nations?
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Command Economy Market Economy Traditional Economy Mixed Economy Economy Types
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Traditional Economy 1. Traditions and custom determine economic decisions 2. Economic activities are centered on family or tribe 3. Little or no technology, choices are determined by environment
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Traditional Economy Who decides what to produce? –People follow their customs and make what their ancestors made Who decides how to produce goods & services? –People grow & make things the same way that their ancestors did Who are the goods & services produced for? –People in the village who need them
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Traditional Economy Examples: – Villages in Africa and South America; the Inuit tribes in Canada; the caste system in parts of rural India
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Command Economy 1.Government makes all economic decisions 2. no competition 3.Purpose of business is to provide goods and services, not make a profit 4.Factories are solely concerned with quotas 5.Consumers have few choices 6.Government sets all prices of goods and services
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Command Economy Who decides what to produce? –Government makes all economic decisions Who decides how to produce goods and services? –Government decides how to make goods/services Who are the goods and services produced for? –Whoever the government decides to give them to
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Command System Countries with communist governments have Command economies Examples: Cuba, former Soviet Union, North Korea *Germany and Russia have moved away from having a Command economy since 1991. Now they have a Mixed economy.
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Market Economy 1.Economic decisions are made by individuals 2. Competitions exist to make profits based on supply and demand 3.Individual freedom is valued and is important 4.Resources are owned by individuals 5.Government does NOT intervene
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Market Economy Who decides what to produce? Businesses base decisions on supply and demand and free enterprise (PRICE) Who decides how to produce goods and services? Businesses decide how to produce goods Who are the goods and services produced for? Consumers
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Market Economy There are no truly pure Market economies, but the U.S. is close.
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Mixed Economy A system featuring both command and market economies Most countries in the world are mixed economy
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Mixed Economy Market + Command = Mixed There are no pure command or market economies. To some degree, all modern economies exhibit characteristics of both systems and are often referred to as mixed economies. Most economies are closer to one type of economic system. than another Businesses own most resources and determine what and how to produce, but the Government regulates certain industries
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Mixed Economy Who decides what to produce? Businesses Who decides how to produce goods & services? Businesses, but the government regulates certain industries Who are goods & services produced for? Consumers
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Mixed Economy Most democratic countries fall into this category (there are no truly pure Market or Command economies). Examples: Brazil, Mexico, Canada, UK, etc.
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Command vs. Market Economy Command Economy Government manages all or most of the resources and industries Market Economy Government is not involved. Resources distributed based on supply and demand
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Advantages/ Disadvantages Command Economy High government control Equal distribution No rich no poor Communal ownership Market Economy No government control Unequal distribution Increased gap between the rich and poor Private ownership
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Mixed Economy Market Economy Command Economy Socialism Capitalism Communism Combination of both Command and Market Economy
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Type Defintio n Social Classes Business $ and variety of goods Role of Governm ent Communis m Socialism Capitalism Economic Theories Chart
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A.Creates a classless society- all are even B. all business is owned and controlled by the government (public, no private businesses) C.Little variety of goods D.Prices are determined by the government E.Ex – Vietnam, Cuba, U.S.S.R. Communism
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A.Believes the means of productions should be owned or regulated by the community as a whole B. Both and private AND public (gov’t) ownership of businesses C.Cheap products, high taxes, some variety Socialism The symbol of the Soviet Union featured the hammer and sickle symbols of laborers for centuries
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Socialism D. Social class- Middle, strive for everyone to be the same status Ex – China, Yugoslavia (parts of U.S.S.R.)
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A.A country’s trade and industry are controlled by private owners for profit B.Upper, middle and lower socioeconomic classes. C.Example – United States of America Capitalism
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Capitalisim Good competition between business, leads to better prices Variety of goods Government does not have a role in business
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A. The idea that the free market, through supply and demand, will regulate itself if government does not interfere B. Government should be “hands off” with big business Laissez-Faire John D. Rockefeller founder of Standard Oil had a net worth of $668 Billion Capitalism (continued)
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Adam Smith 18 th century Scottish economist Published “The Wealth of Nations” in 1776 Explained the workings of the free market within capitalist economies Invisible hand of the market
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Adam Smith (cont.) Laissez-faire - Government stays out of business practices “hands off” to let the market place determine production, consumption and distribution. Individual freedom and choice emphasized.
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Karl Marx 19 th century German economist Author of “Communist Manifesto” and “ Das Kapital” – Government should control economy and distribute goods and services to the people Founder of revolutionary socialism and communism
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A.The way a market regulates itself in a capitalist society B.In your Social Studies Journal add the following visualization. C.So how does this work? Supply & Demand Capitalism (continued)
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Example of Economies… Pure Market Economy Pure Command Economy U.S. Mexico Sweden Russia Mainland China North Korea 37
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Karl Marx Vs Adam Smith While watching the video, complete your notes sheet to compare Karl Marx and Adam Smith https://www.youtub e.com/watch?v=E4Yl Oyugato https://www.youtub e.com/watch?v=E4Yl Oyugato
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Individuals control means of production Market determines what goods will be sold at what price Competition keeps prices low and quality high high standard of living and economic security Individuals free to earn profits, but may risk losses Basic means of production owned and managed by government Private ownership, with regulation, of businesses Cooperation stressed over competition High standard of living Economic Security High taxes Free health care Government owns means of production Government determines what goods will be sold at what price No competition, lower quality goods Goal is equality for everyone
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Work with your table groups to demonstrate your understanding of economies. Analyze the following scenarios and then identify the type of economy that is being described in the statement. Economic Scenarios
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In this economy manufactures of automobiles control the number of vehicles produced each month in a effort to avoid surpluses that would minimize their profits. Scenario #1
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In this economy, the government produces it’s signature crab flavored soft drink and determines that it will be sold for $1.25 in all stores. Scenario #2
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In this economy, investors can make millions investing in the construction of new homes, but it is just as likely that the value of these properties could decrease by 40% and they will lose millions of dollars. Scenario #3
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In this economy, unemployment is around 3% and although taxes are high, all members of the society have access to good schools and hospitals. Scenario #4
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In this economy, there are only 3 types of automobiles to choose from. They often break down and they are all painted a light brown color. Scenario #5
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In this economy, you are the owner of construction company, but all your materials to build houses is regulated by the government to ensure safe housing for all. Scenario #6
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