2. There’s a problem… We all have wants.
Food
Cell phones
Good education
Crocs
Selfie sticks
Fashionable tape dispensers
But you can’t always get what you want.

3. Problem: Economic Scarcity
There’s not an infinite amount of resources
Raw materials
Workers
Time
We have to make CHOICES

4. Three Basic Economic Questions
What will we make?
How will we make it?
Who gets it? 1 2 3

5. Two Modern Approaches
Planned Economies
Market Economies

6. Who Owns the Factors of Production?
1.) Land
2.) Labor
3.) Capital
4.) Entrepreneurship

7. Planned Economy: Communism
“The theory of communism may be summed up in the single sentence: abolition of private property.”

8. Planned Economy: Communism
True communism a classless society
Everyone owns the factors of production
Everything distributed equally
No competition

9. Communist Philosophy Produce needs, not wants
Make needs as close to free as possible
Treat workers better (safe, high wages, benefits)
No private property
Economic equality
Central planning of production
No entrepreneurs

10. Advantages of Communism
Greater income equality
Full employment
Fewer economic recessions
Production of goods and services is planned to meet society’s needs
Consumers receive basic necessities

11. Disadvantages of Communism
Lack of incentive
Low quality goods and services
Lower standards of living
Slow or stagnant economic growth
Lack of technological progress
Bureaucracies (planning creates inflexibility)
Black markets
Loss of individuality
Inefficient and widespread waste of resources

12. Examples of Communism China, Cuba, & the former Soviet Union…
…except not really.
No country has ever TRULY been communist

13. Planned Economy: Socialism
Some private property & some public ownership in control of industry
Goal is to set collective objectives & provide equal access to resources
Education
Healthcare

14. Socialist Philosophy Socialism = many economic rules (fewer rights)
Price controls
High taxes
Cheap or “free” healthcare, education
Safety for workers
Democratic

15. Planned Economies
“In both communism and socialism, there is economic planning, and the government, usually in the form of some bureaucratic agency, helps decide what to produce, how to produce it, and who gets it.”

16. Planned Economies
If gov’t is completely in control of economy, it is a command economy
Even decides # of shoes to be produced!

17. Market Economies Also called capitalist economies
Individuals own factors of production
Gov’t stays out
Gov’t has a laissez-faire approach to production, commerce, & trade

18. Market Economies
Businesses make things, not to do good for mankind, but to make dat $$ MoNeY $$
Since consumers get to choose, producers need to make product with the right features at the right price
“Invisible Hand” of economy

19. Example: Cars
If consumers prefer one company’s car, that business will profit more & have incentive to produce more cars
Car companies that don’t will disappear

20. Market Economies
Scarce resources will go to most desired use & will be used efficiently
If a business is wasteful & inefficient or makes something no one wants, another business will make a similar product better and/or cheaper

21. But if the Government Was in Charge
Wouldn’t be able to quickly respond to changes in tastes & preferences
Efficiency would suffer

22. The Invisible Hand
Businesses & individuals meet society’s needs when they seek own self-interest
Competitive markets w/ profit-seeking businesses have incentive to produce high-quality products as efficiently as possible

23. Market Economy: Capitalism
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self interest.”

24. Advantages of Capitalism
Efficient use of factors of production
Faster economic growth
High-quality goods and services
Higher standards of living

25. Disadvantages of Capitalism
Greater unemployment
Frequent economic recessions
Greater income inequality
Greater economic insecurity

26. Why Does Government Ever Intervene?
So if markets are soooo perfect,
Why Does Government Ever Intervene?

27. What Free Markets Won’t Do…
Maintain rule of law
Law, police, courts, etc.
Provide public services
Roads, bridges, education, defense
Little profit in these areas, so gov’t must step in

28. Mixed Economies
“Modern economies are neither completely free market nor planned. There’s a spectrum of government involvement.

29. Mixed Economies
Most modern economies have free markets AND gov’t intervention
Can be explained by the circular flow model

30. My Pizzeria
How would my pizzeria function under different economic systems?

31. My Pizzeria in a Free Market
I answer the basic economic questions!
I determine how much cheese and pepperoni goes on the pizza
I determine the quality of the cheese and pepperoni
I set my employees wages
I set my business hours

32. My Pizzeria in a Command Economy
The government answers the basic economic questions
The government sets the amount of cheese and pepperoni on each pizza
The government determines quality of cheese and pepperoni
The government sets employees wages
The government sets business hours
Problem: What does the government know about pizza?

33. My Pizzeria in a Mixed Economy
The Government and I both answer the basic economic questions
I determine the amount of cheese and pepperoni on the pizzas; government determines the quality of cheese and pizza
I set employee wages; government sets minimum wage for employees
I determine business hours; government determines whether I am safe to be open or not

34. A Range of Economic systems Depends on Economic Rights
Command
Mixed
Free Market
USSR
Cuba
North Korea
Sweden UK
Hong Kong
Dubai
Singapore
Germany
South Africa
France
China
Canada
Greece
Peru