1. ECONOMIC SYSTEMS SCARCITY unlimited wants vs. Limited resources
An organized approach to producing and distributing goods and services.
Purpose is to make important decisions about the use and distribution of resources.
All economic systems deal with the same problem
SCARCITY
unlimited wants
vs.
Limited resources

2. Economic Systems answers the problem of scarcity.
Limited Resources > SCARCITY < Unlimited Wants

3. Scarcity forces us to make choices about…
What to produce?
How to produce?
For whom to produce?

4. ECONOMIC SYSTEMS Market Economy/Private Enterprise
Command Economy/Centrally Planned Economy
Mixed Economy

5. MARKET ECONOMY (Capitalism)
Pure Price System
Decisions about scarcity should be made free from govt. control.
Economic forces (price system/supply & demand) in the market should answer the three economic questions.
In “laissez faire economics”, the government should adopt a “hands off” policy when it comes to economic decisions.
Decentralized
Laissez Faire
Free Enterprise
Free Market
Private Enterprise

6. Market economy continued…
Competition and profit motive find the most efficient and innovative methods of production.
Values individualism and self-interest.
Individuals can best achieve their goals if they are allowed to have private ownership.
Dollar voting

7. Adam Smith Father of the market system.
Published his ideas in his book called “The Wealth of Nations”.
Believed the economy would regulate itself if left alone. (Laissez Faire)
Believed those that fail to complete fail to survive. (profit motive)
The “invisible hand” – the market will solve all basic economic questions.
If consumers are sovereign supply and demand will dictate the natural flow of the market.

8. SUPPLY & DEMAND
Now that you know how other merchants priced their items how will it affect your pricing of the same items?
Were there some items that would be in high demand because of their low supply?
How might that affect pricing?

9. SUPPLY & DEMAND What happens when demand exceeds supply?
What happens when supply exceeds demand?
How does supply and demand affect choices such as…
Careers
Types of cars
Types of restaurants/food(I.e. Lobster)
What are some recent examples of instances where demand exceeded supply? What were the results?

10. Advantages Disadvantages Consumers can be manipulated by advertising.
Market gives producer incentive
Market provides incentive to hire skilled labor
Wide variety of goods and services are available.
Competition encourages good quality goods.
Productivity is rewarded by profits
Market economy fosters self-reliance.
It is possible to become rich.
Consumers can be manipulated by advertising.
Prices and incomes may not reflect what is best for society.
Boom & bust cycle
Monopolies and oligopolies can emerge
Extreme income inequality can exist.
Environmental problems
Job security

11. THE ROARING TWENTIES
United States was the richest country in the world.(resources & population)
After the war the U.S.A. became wealthy by mass producing consumer goods like radio’s and cars.
Factory workers were paid well which meant they spent money on consumer goods.

12. THE WALL STREET CRASH
As the 20’s progressed , more and more people were buying shares of companies “on margin” and these shares rose in price.
By 1929 share prices were rising but profits for companies began to decline.
In October of 1929 panic selling of shares forced the value of shares to drop drastically.(crashed)
The stock market crash brought an end to prosperity in the U.S.A..

13. Other Causes of The Great Depression
Demand for goods could not keep up with supply
Droughts
Wages did not increase
Farmers went bankrupt
Banks failed
Factories closed
Increase in unemployment
High rate of corporate fraud

14. THE “GREAT”DEPRESSION
By 1931, unemployed people were lining up in breadlines since there was no unemployment insurance.
By 1932, 12 million people were unemployed.
In 1932, the American people voted for Franklin D. Roosevelt as president on a platform of government intervention to get the USA out of the Depression.

15. WE ARE NOW GOING TO LOOK AT THE AMERICAN MOVE TOWARD A MIXED ECONOMY
Following the Great Depression, the
USA was no longer a
"pure" market system!

16. THE “NEW DEAL”
Franklin D. Roosevelt’s program of government spending to help the people of the United States against the Depression.
He wanted to “prime the pump”.
He believed that putting money into people’s pockets was like pouring gas into an engine to get it started.

17. SOCIAL SECURITY Social Security Act (1935)
Gave government pensions to those who could not provide for themselves.
Unemployment insurance was introduced.
Taxed workers to provide money for social security.

18. LABOUR LAWS FAIR LABOUR STANDARDS ACT (1938)
Set out the maximum hours of work and minimum wage laws.

19. Effect of WWII Job creation for war goods (Lend Lease Act)
Increase in American GNP

20. Demand Side Economics (Keynesian)
John Maynard Keynes (Keynesian Theory)
Capitalism tends to move through cycles
Prosperity
Recession
Depression
Recovery
It is therefore necessary for governments to regulate the economy by spending money temporarily “priming the pump” during recession or depression.

21. prosperity depression Deficit financing FISCAL POLICY
Increase government $
Decrease taxes
MONETARY POLICY
Increase $ supply
Decrease interest rates
FISCAL POLICY
Decrease government $
Increase taxes
MONETARY POLICY
Decrease $ supply
Increase interest rates
depression
Deficit financing

22. Supply Side Economic (Reaganomics)
Supply-siders dislike government involvement in the economy and emphasize greater reliance on private enterprise.

23. In Times Of Recession… Reduce corporate taxes Reduce public income tax
Creates more profit
Acts as incentive to enter business
Reduce public income tax
Increases public’s incentive to work
Provides more money to spend
Increased production creates demand
Supply-siders insist that increased demand for goods and services must come from the private sector, not from government spending.

24. In Times of Inflation…
The unrestricted market will eventually bring inflation under control

25. Reaganomics in Action Reaganomics
Following 1981 the Reagan administration put in action the following policies…
Tax cuts primarily for corporations and the wealthy
Cut income tax 25%
Government spending cuts in social services
Welfare subsidies, Medicaid, food stamps
A stable money supply
Deregulation of the economy
Reduced environmental, health, & safety regulations
An aim to balance the budget.

26. Thatcherism in Action Thatcherism
Following 1979 the Thatcher government in Britain put in action the following policies…
Wide scale privatization
Emphasis on individual initiative
Reduced the power of labor unions
Reduced income and corporate taxes

27. Reaganomics: A Balance Sheet
Arguments in Favor
A reduction in unemployment
A reduction in inflation
An increase in production
A world wide move towards private enterprise
Arguments Against
Growing national debt
Growing inequalities in income levels
A boom and bust cycle
The decline of the middle class.

28. ESSENTAILS OF A MIXED ECONOMY

29. Capitalism (Laissez Faire)
Laissez faire (Adam Smith) was used to describe the belief that the government should keep their hands off the economy.
Supported by liberals who believed “there were bound to be poor people in society”.
Typical laissez faire factory…
Means of production owned by capitalists
Owners want to maximize production
Low wages
Expensive product
If there is an excess of labor people are fired
Workers are seen as a piece of machinery

30. Ideas to Battle the Evils of the Industrial Revolution
Democratic Socialism
Turned against Laissez Faire policies and urged government reform to help the long suffering workers.
Typical factory run by the beliefs of a democratic socialist…
Means of production still owned by capitalists
Minimum wage laws would be passed to create higher wages
Reduction in working hours
Safety conditions in factories
Labor unions allowed to operate in the interest of the workers, etc.
They believe that while everyone may not be born with equal abilities, all are equal as human beings and should therefore be guaranteed the basic necessities of life.

31. Ideas to Battle the Evils of the Industrial Revolution
Communism
Communists believe that the inequality capitalism should be overthrown by workers (proletariat) in a violent revolution.
Ultimately capitalists are out to exploit the “proletariat” to make a profit.
Factory run by the beliefs of a Communist…
Workers would overthrow the bourgeoisie (owner)
Temporary dictatorship is set up to create stability
Once the stability exists the government “withers away” and society becomes a workers paradise.
State owns the factory
No profits simply make what you need
Workers are all paid equally. (From each according to their ability, to each according to their need – Karl Marx)
Karl Marx : The Communist Manifesto

32. SWEDEN Both private & public enterprise
Wealth to be distributed evenly
Goal is that every person has a high standard of living

33. PRIVATE OWNERSHIP Almost 100% of agriculture
Private enterprise employs 90% of all industrial workers
Produce 95% of manufactured goods
Many multinationals (IKEA, Saab, Electrolux, Volvo)
Exporter of technology

34. GOVERNMENT CONTROLS Controls some essential services
Natural resources, transportation, energy, railway, water, power, etc.)
Atomic energy state monopoly
Some control because of social policy to prevent company bankruptcies and to maintain high employment.
Use fiscal and monetary policies (loans, interest rates, subsidies, taxes.)

35. GOVERNMENT PLANNING
Purpose of regulations is the desire for the free enterprise to run smoothly
Use five year plans (not official govt. policy)
Forecast and project for economic growth
Communicate to private firms
guidance
Methods of indirect planning (Indicative Planning)
The use of government targets to coordinate private and public economic decision making.
Methods of direct planning
Full employment/freedom from poverty
Social welfare programs

36. THE ROLE OF UNIONS IN THE SWEDISH ECONOMY
Cooperation of Swedish leaders in business, labour and government.
80% of workforce is unionized
Role of unions is to abolish the negativity of capitalism.
Co-determination Act of 1977
Gave unions a role in industrial decision making. (i.e. wage earner funds)
All decisions are negotiated

37. THE CRADLE TO GRAVE WELFARE STATE (Womb to Tomb)
Jobs, housing, adequate income, medical care
Free pre-natal care, family allowance, maternity/paternity allowance
Free nursery, low cost daycare, funded higher education
5 week vacations, old age pensions
Goal is that every person has a high standard of living

38. Economic Equality in Sweden
Health:
90% if workers are sick
Free health care
Dental care free for under 19 (40% over 19)
Travel to and from doctor covered
Patients pay only 4% of all medical fees.

39. Education:
Free to secondary (lunches included)
Grants & loans to post secondary
Pensions:
Receive pension 65+ (65% of highest income years.)
Housing:
Housing subsidies for families with children.
Construction regulated by government to ensure safety.

40. Unions:
Operates U.I.
Government paid scholarships
Training
Relocation (travel expenses)
Unemployment Rates
Sweden (2004) 3-4 %
Canada (2004) 7.5 %

41. BUT…. Canada 5% GST Sweden 25% VAT
Sweden’s tax rate is considerably higher than any other country in the world.
Canada 5% GST
Sweden 25% VAT

42. THE ECONOMIC CRISIS IN SWEDEN
1970 deficit was increasing, high inflation, high unemployment
1982 the Social Democratic Party is elected
Depression
Persuaded Swedes to save
Produced more goods, decreased consumption of consumer goods.
Invest surplus money in countries economy.
Reduce govt. $, lower interest rates
Used capitalist policies to maximize production and socialist policies to redistribute wealth.
RESULT= economic growth

43. Probably the closest Canada has come to a pure market system was during the 1920s.
During that decade governments followed Adam Smith's advice, and left the privately owned economy alone.
Because government did little, taxes were low.
Then came the "crash of '29" followed by the Great Depression. Most Canadians experienced major economic hardships throughout the 1930s.

44. Business owners and workers began to feel that the government should do something to prevent such a national collapse again and to provide help to helpless individuals.
Since then, the Canadian government's role in the economy has grown steadily so that in the 1990s, Canada has become very much a mixed economy.

45. MIXED ECONOMIES (CANADA)

46. Look at some of the programs run by governments in Canada today:
• stabilization of the economy to prevent booms and busts
(Monetary Policy)
control of bank interest rates
Control $ supply
(Fiscal Policy)
increase or decrease taxes
increase or decrease government spending
BANK OF CANADA

47. Government Laws & Regulations
Agriculture
Govt. marketing boards
Influence prices
Crop controls
Quotas to limit production
Food inspection
Negotiate sales of wheat to foreign nations
Regulation of the market
quality controls
some price controls
• prevention of monopolies to preserve competition
Deregulation
A reduction of govt. restrictions on business enterprises. (neo-conservatives)

48. Provision of public services (universality)
Redistribution of wealth to provide security
old age pension
unemployment insurance
child tax credit
welfare
Provision of financial support to businesses
subsidies to failing businesses
Provision of public services (universality)
schools
Police
fire control
Hospitals
parks
Transfer Programs
Progressive tax systems

49. Government Owned Business
Crown Corporations (nationalized industry)
CBC Radio and TV
Royal Canadian Mint
Canada Post Corporation
Reasons…
Control an area of the economy which is vital to general welfare of nation.
To provide goods/services private entrepreneurs are unable to provide.
Earn income for the government.
To rescue companies from bankruptcy.
Help stabilize economy.

50. Privatization
Keynesian Methods (deficit financing) created a $580 billion dollar deficit by 1996.
Canadian govt. began cutting social programs.
Selling of state owned companies to private industry. (Thatcherism/Reaganomics)
Create more efficiency in govt.
Cut bureaucracy in govt.
Mulroney
Privatized 39 crown corps.
Prov. Govt. Alberta
Liquor
Licensing
Telephone

52. Direct Taxes: those paid by citizens. (GST/Income tax)
Indirect Taxes: hidden in the price of goods. (excise tax)

53. There are many direct and indirect controls over our economic system.
The good news is that these many government programs and regulations have provided us with increased stability, security, and equality.
The bad news is that we have lost some individual freedoms and that the cost to taxpayers is high.

57. Canada's debt is the sum our federal government owes in total
Canada's debt is the sum our federal government owes in total. As you can see from the graph below, Canada has continued to have annual deficits that add to our accumulated national debt every year.

58. What role(s) should the government play in the Canadian economy?

59. Planned Economy (Command Economy)
Economy directed by the government
All means of production (land, labor, capital) are state owned and controlled.
The government makes all economic choices of what to produce, how to produce, how to distribute.

60. Rise of the Planned Economy
People believed that other economic systems were exploiting the working class.
Came as a response to the industrial revolution.
Some people believed that if the government controlled the economy and chose what should be produced, how and for whom; there would be greater economic equality.

61. Problems Created by the Industrial Revolution
Low wages
Long hours
Urbanization
Crime
Poverty
Disease
Pollution
Unfair labor practices
Unsafe working conditions

62. Elements of a Planned Economy
Cooperation
Public ownership
Equality as incentive
Central planning
A group of economic experts carry out the goals of the government.
See “Corkscrews vs Bottle Openers” page 325 Ideologies

63. Advantages of the Planned Economy
Income & wealth more evenly distributed
Little unemployment
Experiences fewer booms and busts in economy
Profits used to expand production
Production of goods and services is planned to meet society’s needs
Consumers receive basic necessities.

64. Disadvantages of the Planned Economy
Lack of incentive
Lack of technological progress
Bureaucracies (planning creates inflexibility)
Black markets
Loss of individuality
Inefficient and widespread waste of resources.

65. Father of Communism
Karl Marx was the most well known advocate of the planned economy.
Wrote the Communist Manifesto & Das Kapital (with Engels)
Moved by the problems of the industrial revolution.
Did not believe in gradual change rather REVOLUTION.
Believed workers (proletariat) must replace the ruling class(bourgeoisie) through revolution.

66. Marx’s Beliefs
The bourgeoisie exploited the workers by forcing them to create goods and services with a greater value than the wages received.
Capitalism would bring itself to ruin
Economic depression
Imperialism
Wars
Revolution by the proletariat.
After a series of revolutions capitalism would be eliminated and people would live in a cooperative and voluntary society.
Production would be distributed by the motto…
“from each according to his abilities, to each according to his needs.”

67. The Ideal Marxist Society
Individual differences would still exist but no one could amass enormous wealth while others lived in poverty.
Equal opportunity (classless society)
Abolish private property and profit motive (public ownership)
With the existence of surplus goods crime and greed would not exist.
Common Good