1. Economic Systems
American Government

2. Three Economic Questions
What goods and services will be produced?
How will they be produced?
Who gets the stuff?

3. 3 Economic Systems
Economic system (economy) – an organized way of providing for the wants and needs of people.
1). Command
2). Market
3). Traditional

4. Command Economies
Economic activity is planned out by the government, with people having little influence. (Communism)
Examples:
Cuba
North Korea
Former Soviet Union

5. Command Economies - Pros
Allows an economy to change direction very quickly.
After Stalin’s first two Five Year Plans, Russia moved from a rural agricultural economy to an industrial economy.
Little uncertainty as to who will do what.
No unemployment because the government gives everyone a job (whether it is needed or not).

6. Command Economies - Cons
Not designed to meet the wants of consumers.
Provides little to no incentives
Do just enough to meet quotas.
No rewards for individual performance.

7. Market Economies
People and businesses act in their own best interests to answer the three basic economic questions.

8. Market Economies – How they work
Lure of personal and financial gain leads consumers and businesses to interact in various markets.
Each person acts in their own best interest.

9. The First Economist – Adam Smith
“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 interest.” – Wealth of Nations, 1776

10. Market Economies - Pros
Economy can adjust to change over time
Businesses can adapt to changing consumer tastes by creating new/different products.
High degree of individual freedom
Businesses and individuals are free to do what they want.
Economic decisions are made by all, not limited to government officials.
Seemingly unlimited variety of goods and services available to consumers.

11. Market Economies - Cons
Does not provide for the basic needs of everyone.
Elderly, disabled and other groups would be unable to survive in a market economy without governmental assistance.
Does not provide certain
services that people value.
(Education)
High degree of uncertainty
(Recessions & unemployment)

12. Traditional Economies
Economic activity is based on tradition with roles determined by previous generations.
Examples:
Medieval Europe
Various hunting tribes in Africa and northern Canada

13. Traditional Economies – Pros
Everyone knows what their role is.
Life is generally predictable and stable.

14. Traditional Economies - Cons
Discourages new ideas and new ways of doing things.
Lack of progress leads to a lower standard of living.

15. The US Economic System Mixture of command and market economy
“Capitalism”
Based on 4 important principles
Private Property
Freedom of choice
Profit
Competition

16. Economic Goals Economic Freedom Economic Equity Economic Security
Price Stability

17. Economic Freedom
Individuals have freedom to choose their own occupations, employers, and spending habits.
Businesses have freedom to choose how and where to produce goods/services.

18. Economic Equity
People should receive adequate pay for the work they perform.
People should all have the same opportunities to get ahead.
Are we meeting this goal?

19. Economic Security
We should have protection from negative economic events such as layoffs and injuries.
Social Security – federal program that provides disability and retirement benefits.
Everyone should have their basic needs met.
Are we meeting this goal?

20. Price Stability
We should have stable prices that protect against inflation.
Inflation – a rise in the general level of prices.
Are we meeting this goal?