how do economic systems answer your basic economic questions?
TRANSCRIPT
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Economic Systems
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How do economic systems answer your basic economic questions?
Discussion Topic
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What to produceHow to ProduceFor whom to produce
Basic Economic Questions
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Answers the basic economic questions by rituals, habits, religious beliefs, and customs
Traditional Economy
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Individual roles are determined the elders
Examples: herding cattle, hunting and gathering, subsistence farming
Traditional Economy
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INUIT OF CANADA
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Bushmen of Kalahara
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Bush women of Kalahara
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Central Australia
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There is little or no uncertainty- everyone knows the role they play
Life is generally stable, predictable, and continuous
Traditional Economy Advantages
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Tends to discourage new ideas and new ways of doing things
Lack of progress lowers the standard of living
Traditional Economies Disadvantages
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1. What to produce?Whatever customs and traditions dictate
How do traditional economies answer the basic economic questions?
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2. How to produce?Whatever customs and traditions dictate
How do traditional economies answer the basic economic questions?
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3. For whom to produce?Whatever customs and traditions dictate
How do traditional economies answer the basic economic questions?
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Basic Economic Questions are answered by the government
Command Economy
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Only two Command Economies left in World-Cuba and North Korea
Command Economy
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It is associated with communism and socialism
Command Economy
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The government has total control over production and its factors, thus the economy can change rapidly. Whatever is needed most will be produced
Advantages of Command Economy
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Example is collective farms which are owned and operated by the central government. Money made goes to the government
Command Economy
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Free education, free healthcare, and other public services
Advantages of Command Economy
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Economy is designed to meet needs not wants
There is no incentive to work hard—people don’t often lose their jobs so they do the bare minimum
Disadvantages of Command Economy
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Economy supports a large bureaucracy (government) which means decision making is slow, costs of production are high, and there is no flexibility
Disadvantages of Command Economy
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There is no reward for initiative
Disadvantages of Command Economy
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1. What to produce?Whatever the government says to produce
How do command economies answer the basic economic questions?
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2. How to produce?However the government tells you to produce
How do command economies answer the basic economic questions?
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3. For whom to produce?For whomever the government tells you to produce
How do command economies answer the basic economic questions?
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Basic economic questions are answered by consumers
Market Economies
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Laissez-faire is a pure market economy meaning “allow to do”. The government has little or no power in what is produced or sold.
Market Economy
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Free-enterprise system- business owners set their own prices and sell their own goods.
Market Economy
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Adjusts to change based on consumer wants
High level of individual freedom
Low level of government interference
Advantages of Market Economy
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Because individuals make the decisions, everyone has a voice in the way economy runs
Advantages of Market Economy
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Wide variety of available goods and services
Many choices=high degree of consumer satisfaction
Advantages of Market Economy
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Poverty: only those with money can participate
Disadvantages of market Economies
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Market does not provide for people’s basic needs. Government must attempt to do this (Think about Katrina)
Disadvantages of market Economies
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High degree of uncertainty: people lose their jobs and businesses fail
Disadvantages of market Economies
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Greed based system puts profits before people (think about loss of jobs here. What caused it?)
Disadvantages of market Economies
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Are they truly Free market economies?
Does the government regulate businesses?
Does the government control any businesses?
What kind of economy do the U.S., Canada and the U.K. really have?
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1. What to produce?Directed by the consumers.
How do market economies answer the basic economic questions?
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2. How to produce?Companies decide cheapest and most efficient means of production.
How do market economies answer the basic economic questions?
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3 For whom to produce?The consumer that has the ability and money to afford the companies product.
How do market economies answer the basic economic questions?
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An economy is considered a mixed economy when there are characteristics of more than one economy evident.
For example, the United States is a mixed economy because there are privately owned businesses that operate on their own like a market system but they are regulated by the government also.
Mixed Economy