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Economic Systems Today’s Objective: To be able to differentiate between the three economic systems and their characteristics.

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Presentation on theme: "Economic Systems Today’s Objective: To be able to differentiate between the three economic systems and their characteristics."— Presentation transcript:

1 Economic Systems Today’s Objective: To be able to differentiate between the three economic systems and their characteristics.

2 Types of Economic Systems
How society uses resources to satisfy people’s wants Three basic systems: Traditional Command Market economies

3 Economic Systems Read through the economic systems sheet
With a partner list 3 examples of elements of each type of economic system that we find in the US economy Then list the pros and cons of each system

4 Types of Economic Systems
Traditional Economy centers on families, clans, or tribes decisions are based on customs and beliefs Good of the group always comes before individual desires

5 Characteristics of Traditional Economies
Advantages and Disadvantages Advantages: little disagreement over goals, roles methods of production, distribution determined by custom Disadvantages: as result of resistance to change, less productive do not use new methods; people not in jobs they are best suited for low productivity results in low standard of living

6 Types of Economic Systems cont.
Command Economy (centrally planned economy) government makes economic decisions determines what to produce; how to produce; who gets products determines who is employed, work hours, pay scales Wants of individual consumers rarely considered Government owns means of production: resources and factories

7 Command Economies Today
No pure command economies today Some economies still have mostly command elements

8 Command Economies Today
North Korea Communist North Korea used resources for military, not necessities built large army; nuclear weapons program In 1990s and early 2000s, millions died of hunger, malnutrition In 1990s, production decreased and economy shrank Since 2003, some market activity allowed

9 Command Economies Today
Impact of Command Economies In theory, command systems fair to everyone; In practice, many disadvantages central planners do not understand local conditions workers have little motivation to be productive or conserve resources artificially low prices lead to shortages people sacrificed to carry out centrally planned policies

10 Types of Economic Systems cont.
Market Economy driven by choices of consumers and producers consumers spend money, go into business, sell their labor as they wish producers decide how to use their resources to make the most money Consumers, producers benefit each other when they act in self-interest

11 Fundamentals of a Market Economy
1: Private Property and Markets 2:Limited Government Involvement Laissez faire—government should not interfere in economy Capitalism—system having private ownership of factors of production says producers will create products consumers demand Actual market economies all have some government involvement

12 Fundamentals of a Market Economy
3: Voluntary Exchange in Markets Voluntary exchange—traders believe they get more than they give up 4: Competition and Consumer Sovereignty Consumer sovereignty—buyers choose products, control what is produced Competition controls self-interested behavior sellers offer low price or high value to please consumers, make profit

13 Fundamentals of a Market Economy
5: Specialization and Markets Specialization—people concentrate their efforts in the activities they do best encourages efficient use of resources leads to higher-quality, lower-priced products

14 Impact of Market Economies
Advantages Individuals free to make economic choices, pursue own work interests Less government control means political freedom Locally made decisions mean better use of resources, productivity Profit motive ensures resources used efficiently, rewards hard work resulting competition leads to higher-quality, more diverse products

15 Impact of Market Economies
Disadvantages Pure market economy has no way to provide public goods and services Does not give security to sick or aged During U.S. industrial boom, business owners rich, workers low pay Businesses did not address problems caused by industrialization Industrialized societies adopt some government control of economy

16 Today’s Mixed Economies
Types of Mixed Economies U.S. basically has market system European countries greater mix of market and command elements France—government controls some industries; provides social services Sweden—state owns part of all companies; lifelong benefits, high taxes Namibia—traditional; state supports market, foreign investment

17 Campus Parking Options
Leave things as they have been First-come, first-served Markets and a price system Democracy Random choice

18 Traditional, Command, Market, Mixed?
An economic system heavily influenced by habits, customs, and religious beliefs.   Government directly influences and vastly controls business practices due to ownership of natural and capital resources. Privately owned factors of production (i.e., factories and machines). Prices are influenced by supply and demand. An economic system that combines elements of all the other basic systems. Characterized by very low unemployment rate. Considered synonymous with a capitalistic economy. Individual freedom is limited (roles of individuals are static from generation to generation).

19 Dreaded Disease Read through the dreaded disease scenario
With a partner answer the questions Keep in mind what we’ve discussed about economic systems and opportunity cost

20 Dreaded Disease What would be the “market” solution to the problem?
Benefits? Opportunity cost? What would be the command solution to this problem?


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