chapt 2: economic systems section 1: answering the three

Chapt 2: Economic Systems

Section 1: Answering the Three Economic Questions

Do Now: Answer the following in your notes

• Which Factors Influence the economic decisions made here at school? Who makes these decisions?

• What are these decisions based on?• Answer these same questions for the U.S.A.

Economic Systems

Here at School:

• Economic System: method used by a society to produce & distribute goods & services

Economic Systems

TVA: Economic Systems

• Take one of the three (3) types of economic systems and produce a sketch or drawing that represents that system. You may use one (1) word - but it cannot be the name of your system.

Economic Systems

TraditionalCommand

Market

Economic Systems - Who Answers the following questions in each Economic System?

Economic Systems

What to Produce?

How to Produce?

For Whom to

Produce?

Real World Example

Traditional

Command

Market

Economic System

What to Produce How to Produce For Whom to Produce

Example

Traditional

Command

Market

Determined by tradition / custom

Roles passed from generation to generation

Usually centered around a family and social units such as a tribe

Amish, PA

Aborigines, Australia

Inuit of Canada

Govt. Official(s)

Govt. Official(s)

Govt. Official(s)

Middle Ages – Feudal Europe Soviet Russia North Korea

Individuals USA Canada Australia

Determined by tradition / custom

Roles passed from generation to generation

Individuals Individuals

Are there true Traditional, Command, or Market Economies?

• Mixed economy – economic system that combines tradition & the free market with limited government involvement.

Economic Systems

Economic Systems

Economic SystemsEconomic System

Traditional

Advantages Disadvantages

Command

Advantages Disadvantages

Market

Advantages

Disadvantages

Economic SystemsTraditionalAdvantages - • fosters the sense of community, • provides a sense of security & comfort. • Little, to no unemployment & low crime rate. • greater degree of freedom - little government - no competition. Disadvantages - • Little economic growth & development• change very slow• lack of social mobility. • does not take advantage of technology• little promotion of intellectual & scientific development. • Little Choice.

Economic SystemsCommand Advantages • little to no decisions making on the part of individuals. •Government responsible everything Disadvantages •Little to no freedom. Market Advantages • individuals make decisions • self interest can lead to success for entire economy Disadvantages •greed & lack of regulation can lead to the loss of an essential part of an economy – competition.

Economic Goals

Economic Efficiency

wise use of available resources so as to obtain the greatest benefits possible

Economic Freedom

The freedom to own property, to make a profit, and to make choices about what to produce, buy, and sell

Economic Security & Predictability

Assurance that goods & services will be available, payments will be made on time, & a safety net will protect individuals in times of economic disaster

Economic Equity Fair distribution of wealth

Economic Growth & Innovation

Innovation leads to economic growth, & economic growth leads to a higher standard of living Economic Growth (the ability of the economy to produce increasing quantities of goods and services)

Economic Stability

refers to maintaining stable prices and full employment and keeping economic growth

Economic Equity

12

Chapt 2: Economic SystemsMarket System vs Command System

Brain Storm I: Make a list of everything you think of when you hear the term “Market Economy”

Brain Storm II: Make a list of everything you think of when you hear the term “Command Economy”


Market or Free Market economy is an economic system in which decisions on production & consumption of goods & services is based on voluntary exchange in markets. (based on Individuals)

Capitalism

__________ ____________________

A planned economy (also known as command economy and centrally-planned economy) is an economic system in which the state or government controls the factors of production and makes all decisions about their use and about the distribution of income.

communism


1. Read the quotes and answer the questions that follow each in your notes2. List & explain what else you know about the ideology expressed in the quotes

Economic SystemsFree Market Economy

"The natural effort of every individual to better his own condition is so powerful a principle, that it is alone, and without assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumber everyone......"(p. 508)


"Commerce and manufacturing can seldom flourish long in any situation which does not allow for a regular system of justice...... the people must feel secure in the possession of themselves, their property, the faith of contracts and have a certain degree of faith in the government to be fair and just when conflicts arise........"(p. 862)

The Wealth of Nations (1776)

Basic Capitalist Principles

Goods and services are produced for profitable exchange. Human labor power is a commodity for sale ! LABOR IS VALUABLE.

Businesses

Firms

Producers

Households

Labor

Consumers

Goods & Service

Labor & Investments

Consumer Spending

Wages

Circular Flow Model of a Free Market Economy

Firms pay households for land, labor, & capital


Self-interest Competition

Free Market

Incentive

“Invisible Hand” Because the Market system is based on the choices of individuals - with all these elements present the Market is “self-regulating”

★ Private Ownership of the Means of Production★ Private Property Rights★ Profit Motive★ Consumer Sovereignty ★ Law of Supply and Demand★ Law of Competition★ Social Division of Labor★ Laissez Faire

Basic Capitalist Principles

Economic SystemsCommunism

“The history of all hitherto existing society is the history of class struggles.

Freeman and slave, patrician and plebeian, lord and serf, guildmaster and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight, that each time ended, either in the revolutionary reconstitution of society at large, or in the common ruin of the contending classes.” ― Karl Marx, The Communist Manifesto

Economic SystemsCommunism

“The modern bourgeois society that has sprouted from the ruins of feudal society has not done away with class antagonisms. It has but established new classes, new conditions of oppression, new forms of struggle in place of the old ones.”

“In short, the Communists everywhere support every revolutionary movement against the existing social and political order of things.

“Then the world will be for the common people, and the sounds of happiness will reach the deepest springs. Ah! Come! People of every land, how can you not be roused.” ― Karl Marx, The Communist Manifesto

Basic Communist Principles

Primitive Communism

Slavery

Feudalism

Industrial Revolution

?

The History of human socio-economic interaction


Proletarians Modern Laborers

Bourgeois Modern Industrialist

Class Struggle Modern Industrialist

“The Haves” “The Have-nots”


Proletarians Modern Laborers

Bourgeois Modern Industrialist

Revolution

“Dictator of Proletariat”

" Worker’s Utopia

" “From each according to their ability, To each according to their need.”

Communist Revolution

" Revolution =NO private property. " No more exploitation " Bourgeoisie will fight " revolution violent. " A dictatorship of the proletariat will follow

to weed out remaining capitalist

The Worker’s Utopia

" A classless society with no more oppression

" Universal Ownership of the Means of Production

" “From each according to their ability, To each according to their need.”

" Egalitarian Society " Workers Utopia


Primitive Communism

Slavery

Feudalism

Industrial Revolution

Socialism

The History of human socio-economic interation

Communism


How have these systems worked out?What good has become of each?What challenges have developed of each?

Chapt 2: Economic Systems

Section 4: Modern Economies

Economic SystemsModern Economies

Main Idea: Government intervenes in market economies because some needs and wants of modern societies are hard to answer in the marketplace or may be answered more fairly for all members of society with government involvement.


What Needs & Wants are hard to answer?•National Defense•Roads & Highways Systems•Conservation•Environmental Protection


What needs & wants are answered more fairly with government involvement?

•Education•Health care•Employment•Mass Transit


Main Idea: Government intervention Dominates in some mixed Economies


How does government intervene in North Korea’s economy?

•The government owns all property and economic output•There is some private production


How is government intervention less in China’s economy?

•China is moving away from central planning•25% of all enterprises are at least partly owned by individuals


Main Idea: The Market System dominates in some economies.


What is one of the World’s freest economies?

Hong Kong

http://www.heritage.org/index/ranking


Why is it one of the freest?

•As a special administrative region of China, Hong Kong is being allowed to continue under the free economic system introduced under British rule.


Reviewing Key TermsHow does Free Enterprise differ from Laissez Faire?

In Free Enterprise govt. plays a limited Role as a producer & consumerLaissez Faire – govt. acts to settle disputes i.e. referee


Reviewing Key Terms

Why is China said to have a transition economy?

China is in the process of changing from a centrally planned economy to a market based economy

Economic SystemsModern EconomiesReviewing Key Terms

What does it mean to privatize an industry?

Privatization occurs when a business ownership is transferred from the state to private individuals, thus encouraging competition.


Reviewing Key Terms

Why do the world’s national economies fall inside a continuum?

No national economy today relies completely on either central planning or the free market


What would be the best way to describe the U.S. economy?

Mixed with leanings toward the free market economy.

Circular Flow Model of a Free Market Economy

Firms pay households for land, labor, & capital

chapt 2: economic systems section 1: answering the three

Documents