Presentation on theme: "The Three Economic Questions And The Four Economic Systems"— Presentation transcript:
1 The Three Economic Questions And The Four Economic Systems
2 Every society must answer three economic questions: What goods and services should be produced?How should these goods and services be produced?Who consumes these goods and services?
3 Four Economic SystemsTraditionalCommandMarketMixed
4 Traditional Economic System: Ritual, Habit, and Custom The basic economic questions are answered: by doing things the way they have always been done.
5 AdvantagesSets forth certain economic roles for all members of the communityStable, predictable, and continuous lifeRevolves around familyCommunities stay relatively close and small
6 DisadvantagesDiscourages new ideas, new technology, and new ways of doing thingsStagnation and lack of progressLower standard of living – lack modern conveniencesHave few mechanisms in place to deal with disasters such as floods, drought
7 Command or Centrally Planned Economic System Basic economic questions of what, how and for whom to produce are answered: by a central planning authority.
8 Advantages Central authority is in command of the economy Capable of dramatic change in a short timeLittle uncertainty over choice of career, where to work, or losing jobMany basic education, public health, and other public services available at little or no cost
9 Disadvantages Does not meet wants and needs of consumers Lacks effective incentives to get people to workRequires large bureaucracy, which consumes resourcesNew and different ideas discouraged, no room for individuality
10 Problems of a Centrally Planned Economy Centrally planned economies face problems of poor-quality goods, shortages, and diminishing production.
11 Market Economic System: (Free Market, Capitalism) Buyers and Sellers: Dollars “Vote”The Basic economic questions are answered: by having buyers and sellers make economic decisions.
12 Advantages Overtime, can adjust to change Individual freedom for everyoneLittle government interferenceDecentralized – not concentrated in the hands of a fewVariety of goods and servicesHigh degree of consumer satisfaction
13 DisadvantagesRewards only productive resources; does not provide for people too young, too, old, or too sick to workWorkers/businesses face uncertainty as a result of competition and change: no guarantee for jobDoes not produce enough public goods such as defense, universal education, or health care
14 Mixed Economic SystemThe basic economic questions are answered: by combining traditional, state-run, and private enterprises.
15 Mixed Economic System: No real disadvantages A combination a traditional, market, and command economies.Need government intervention – create laws protecting property rights and enforcing contractsGovernments provide for national defense, roads and highway systems, conservation, environmental protection, educationKey is to balance control and freedom
16 The degree of government involvement in the economy varies among nations, and can affect its society.Continuum of Mixed EconomiesCentrally plannedFree marketIranNorth KoreaCubaChinaRussiaGreecePeruUnited StatesSouth AfricaFranceUnited KingdomBotswanaCanadaSingaporeHong Kong
17 Essential Questions/Ideas How do societies provide the necessary items for their people?Who gets to decide?Which economic system fails to worry about its people’s wants?How does each system assign roles to play in the economy?When should government intervene in the economy?Which economic system do you think is most beneficial for everyone?Why?