1. Economic Systems

2. Three Key Economic Questions
What goods and services should be produced?
How should goods and services be produced?
Who consumes the goods and services?

3. Economic Goals and Societal Values
Economic Efficiency
Economic Freedom
Economic Security and Predictability
Economic Equality
Economic Growth and Innovation

4. Three Kinds of Economies
Traditional
Market
Command
Based on tradition and religion
Centralized authority
Little innovation
Little govt involvement
Production driven by demand- the invisible hand
Competition
Private ownership of means of production
Income inequality
Innovation
Govt control of economy
State owned enterprises
Central authority chooses what to make
No competition
Income equality
Stagnation

5. Creating your own system
You have just landed on a desert island and you need to decide which kind of economy to put in place.
Some of you will represent the Market Economy camp and some will represent the Command Economy camp.
To create your system, you will need to take the following steps and answer the following questions:

6. Creating your own system
Step 1: Prioritize your economic goals
Step 2: Answer the following questions
Who decides how resources will be allocated?
Who owns the factors of production?
Who determines what goods and services will be produced?
Who determines prices?
How is income distributed?
Must all members contribute equally?
What is the role of “government” in the economy?

7. Free Market Circular Flow Model

8. Self Regulating Nature of the Free Market
Self Interest is the motivating factor
Incentive for consumers to find lower prices and for firms to make higher profits leads to competition
Encourages innovation that leads to economic growth through creative destruction
Self Interest and Competition regulate the market place to produce the highest quality goods at the lowest possible prices

9. The big failing of the Free Market
Competition and Creative Destruction!!!

10. Mixed Economy Circular Flow Model

11. Benefits of Mixed Economies
Deals with the free rider problem
Can overcome market failures
Overcome the vicissitudes of the market through redistribution (Welfare, Social Security, Disability, Workers Compensation, Medicare)