Presentation on theme: "Economic Systems SSEF4 The student will compare and contrast different economic systems and explain how they answer the three basic economic questions."— Presentation transcript:
1 Economic SystemsSSEF4 The student will compare and contrast different economic systems and explain how they answer the three basic economic questions of what to produce, how to produce, and for whom to produce.A .Compare command, market, and mixed economic systems with regard to private ownership, profit motive, consumer sovereignty, competition, and government regulation.B. Evaluate how well each type of system answers the three economics questions and meets the broad social and economic goals of freedom, security, equity, growth, efficiency, and stability.SSEF5 The student will describe the roles of government in a market economy.A .Explain why government provides public goods and services, redistributes income, protects property rights, and resolves market failures.B. Give examples of government regulation and deregulation and their effects on consumers and producers
2 First, we need to understand an important economic notion If I said “If you do something wrong, I will punish you.” I have given you a negative incentive.If I said, “If you study hard and do you work, you will earn a good grade” I have given you a positive incentive.Incentives are our reasons for performing an action (Positive) or for avoiding an action (Negative)We also have basic economic questions that we can ask:1) What to produce?2) How to produce?3) For whom do we produce?
3 4 types of economies Traditional Market Command Mixed Based on family/community custom and ritualsEX. Aborigines, Amazon tribesMarketRelies on the consumption choices of consumersCapitalist nations: EX. Japan, US*CommandGovernment decides on 3 economic questionsNorth Korea, China, CubaMixedAspects of Market and CommandMost nations really fall in this category*
4 Market SystemThe incentive in a market system is to make a profit, we call this the profit motiveProfit is when total gains > total costsBecause of this motivation, it is important that we allow individuals to own the means of production (land, labor, and capital)We call this Private Ownership
5 Market SystemBuyers and sellers determine prices and products togetherProducers own the means of production, seek a profit, so make things they believe will sellConsumers have the freedom to purchase when they wish, how many they wish, and what they wishWe call this Consumer Sovereignty
6 Market SystemWith so many producers each seeking a profit, it is imperative that there is competitionIF one competitor invents a new method or a new product, they will reap the maximum profits and others will be left behindThis competition fuels innovation and economic growth
7 Command System On the other side of the spectrum is the command system The incentive in the command system is to produce equality among citizensTo do this, the government plans the economy and owns the means of production
8 Command SystemThe government owns the means of production, so private ownership is strongly discouragedBecause the motive is for people to have equally, profit motive is extremely limitedIn order to secure equality, the government dictates what is produced, how to produce, and for whom to produceSince the government is the only producer, competition is limited
9 Mixed system The majority of the world lives in this form of economy. Depending on where you live, the amount of government intervention in the economy will vary.Places like Singapore, Hong Kong, and the U.S. have less government intervention than places like Sweden, Italy, while places like Cuba and North Korea are completely dependent on government decisions.
10 Broad Social GoalsEvery economic system must deal with scarcity of resources and the policies a state chooses will try to emphasis social goals the people believe are most important
11 Economic EfficiencyUsing limited resources to produce the most goods and services to satisfy people’s wantsMarginal analysis must happen!Benefits of the good being produced > cost, then produce the good!
12 Economic EquityBased on people’s beliefs of morality – right and wrongUsually deal with redistribution of wealthHow much should one group be taxed to provide goods and services to others?Medicare, unemployment, job training programs, food stamps, etc.
13 Economic Freedom Choose what to buy and sell Where to work and live Where to open a businessSome freedoms must be restricted for general welfare of societyIllegal drugs cannot be bought/soldTaxes limit individual’s ability to decide how to spend some of their income
14 Economic GrowthIncrease in the goods and services produced in a countryGDP must increase, meaning more goods and services need to be producedInvesting in capital goods and education help produce economic growth
15 Economic SecurityProtection for consumers and producers against economic risksLoss of job, inability to work due to illness or old age, business or bank failures, etc.Individuals try to maintain security by saving money and purchasing goods and services and insuranceGov’t programs also offer security – “safety nets”
16 Economic StabilitySteady economic growth with no big swings in output or consumptionEmployment stability with no swings in employment/unemploymentPrice stability when prices do not rise or fall rapidly – this allows people and businesses to plan long term when taking loans or purchasing for future production