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 SystemsToday’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 wantsThree basic systems:TraditionalCommandMarket 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 economyThen list the pros and cons of each system
4 Types of Economic Systems Traditional Economycenters on families, clans, or tribesdecisions are based on customs and beliefsGood of the group always comes before individual desires
5 Characteristics of Traditional Economies Advantages and DisadvantagesAdvantages: little disagreement over goals, rolesmethods of production, distribution determined by customDisadvantages: as result of resistance to change, less productivedo not use new methods; people not in jobs they are best suited forlow productivity results in low standard of living
6 Types of Economic Systems cont. Command Economy(centrally planned economy) government makes economic decisionsdetermines what to produce; how to produce; who gets productsdetermines who is employed, work hours, pay scalesWants of individual consumers rarely consideredGovernment owns means of production: resources and factories
7 Command Economies Today No pure command economies todaySome economies still have mostly command elements
8 Command Economies Today North KoreaCommunist North Korea used resources for military, not necessitiesbuilt large army; nuclear weapons programIn 1990s and early 2000s, millions died of hunger, malnutritionIn 1990s, production decreased and economy shrankSince 2003, some market activity allowed
9 Command Economies Today Impact of Command EconomiesIn theory, command systems fair to everyone; In practice, many disadvantagescentral planners do not understand local conditionsworkers have little motivation to be productive or conserve resourcesartificially low prices lead to shortagespeople sacrificed to carry out centrally planned policies
10 Types of Economic Systems cont. Market Economydriven by choices of consumers and producersconsumers spend money, go into business, sell their labor as they wishproducers decide how to use their resources to make the most moneyConsumers, producers benefit each other when they act in self-interest
11 Fundamentals of a Market Economy 1: Private Property and Markets2:Limited Government InvolvementLaissez faire—government should not interfere in economyCapitalism—system having private ownership of factors of productionsays producers will create products consumers demandActual market economies all have some government involvement
12 Fundamentals of a Market Economy 3: Voluntary Exchange in MarketsVoluntary exchange—traders believe they get more than they give up4: Competition and Consumer SovereigntyConsumer sovereignty—buyers choose products, control what is producedCompetition controls self-interested behaviorsellers offer low price or high value to please consumers, make profit
13 Fundamentals of a Market Economy 5: Specialization and MarketsSpecialization—people concentrate their efforts in the activities they do bestencourages efficient use of resourcesleads to higher-quality, lower-priced products
14 Impact of Market Economies AdvantagesIndividuals free to make economic choices, pursue own work interestsLess government control means political freedomLocally made decisions mean better use of resources, productivityProfit motive ensures resources used efficiently, rewards hard workresulting competition leads to higher-quality, more diverse products
15 Impact of Market Economies DisadvantagesPure market economy has no way to provide public goods and servicesDoes not give security to sick or agedDuring U.S. industrial boom, business owners rich, workers low payBusinesses did not address problems caused by industrializationIndustrialized societies adopt some government control of economy
16 Today’s Mixed Economies Types of Mixed EconomiesU.S. basically has market systemEuropean countries greater mix of market and command elementsFrance—government controls some industries; provides social servicesSweden—state owns part of all companies; lifelong benefits, high taxesNamibia—traditional; state supports market, foreign investment
17 Campus Parking Options Leave things as they have beenFirst-come, first-servedMarkets and a price systemDemocracyRandom 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 questionsKeep 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?