1. Ch.18 - Economic Systems Academic Civics Mr. Blough

2. What is Economics?:  Economics – The study of how limited resources are used to satisfy unlimited material wants and needs; the study of decision- making in a world of scarcity.  Source: Krugman, Wells, Olney, 2009  Source: Krugman, Wells, Olney, 2009.  Scarcity – the result of not having enough resources to satisfy all individuals

3. The problem of economics…

4. The role of money in economics:  It might as well be this:  If it can’t be used to acquire this:

5. So what is money?  Money – a medium of exchange used to purchase goods and services  Factors that affect the value of a nation’s money:  Supply and Demand  Net exports vs. imports  Exchange Rates  Monetary policies by governmental institutions (e.g. Fed. Reserve)

6. Factors of Production  Economic Resources  Natural Resources – raw materials found in nature that are used to produce goods  Human Resources – people’s knowledge, efforts, and skills used in their work  Capital Resources – used to produce goods and services (buildings, materials, and equipment)  Entrepreneurial Resources - recognize the need for new goods or service  Scarcity – shortage of resources

7. Why Economic Systems?  Nations use economic systems to determine how to use their limited resources effectively.  Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life.  Different types of Economic Systems  Traditional Economy  Market Economy (capitalism)  Command Economy  Mixed Economy

8. Traditional Economy  Found in rural, under- developed countries–  Vanuatu  Pygmies of Congo  Eskimos & Indian tribes  Belarus  Cultural customs govern the economic decisions that are made  Farming, hunting and gathering are done the same way as the generation before  Economic activities are centered around the family or ethnic unit  Men and women are given different economic roles and tasks  Advantages: people have specific roles; security in the way things are done  Disadvantages: Technology is not used; difficult to improve

9. Market Economy (Free Enterprise)  Also called a Free Market Economy or Free Enterprise Economy  Businesses and consumers decide what they will produce and purchase and in what quantities  Laissez-Faire economics (keep the government out of it)  Decisions are made according to law of supply & demand  Supply and demand of goods and services determine what is produced and the price that will be charged.  Advantage—competition to have the best products and services  Disadvantage—huge rift between wealthy and poor  Note: a true market economy does not exist.

10. Role of Markets in Economic Systems  Market – a location or system in which goods are traded or exchanged  There are markets at the:  Local (neighborhood) level  State level  National Level  World Level

11. Command Economy  The government (or central authority) determines what, how, and for whom goods and services are produced.  Two types:  Strong Command – where government makes all decisions (communism – North Korea, Cuba, China [sort of], etc.)  Moderate Command – where some form of private enterprise exists but the state owns major resources (socialism – France and Sweden)   Advantages  Guarantees equal standard of living for everyone  Less crime and poverty  Needs are provided for through the government  Disadvantages  Minimal choices  Fewer choices of items  No incentive to produce better product or engage in entrepreneurship  Also known as a Planned or Managed Economy

12. Command Economy in action:

13. Mixed Economy  Combination of a market and a command economy  Government takes care of people’s needs  Marketplace takes care of people’s wants.  Most nations have some form of a mixed economy: United States, England, Australia  Advantage—balance of needs and wants met by government and in the marketplace  Disadvantage—citizens have to pay taxes; disagreements over the government’s role