Do Now

• Please give me an example of the following resources:

• Human• Natural • Capital

• What are some questions a person must ask themselves if they want to open a business?

Scarcity Means There Is Not Enough For Everyone

Government must step in to help allocate (distribute) resources 2

Economic Systems

How the Government Influences How I Make Money

Economic Systems

• Def: The method used by a society to produce and distribute goods and services

• Or, how the government tells us what we can get and how to get it

All Economic Systems Must Consider the Following Questions:

1. What goods and services to produce?2. How will they produce them?3. Who will get them?4. How much will they produce now, and how

much later?

Each economic system answers these questions in a DIFFERENT WAY

Types of Economic Systems

• There are 3 basic types of economic systems.

1. Traditional Economy

• Economic questions are answered by habits and customs (The way it has always been done)

• Children work the same jobs parents worked often farming or hunter/gatherer

• Fear Change!• Ex. Eskimos, the Amish, Pigmies, Bush People

2. Command Economy

• The government answers the basic economic questions

• Advantages: able to act quickly in emergencies, provide for all people equally

• Disadvantages: Inefficient, no incentive to work hard or be creative

• Ex. Communist Countries (China?, Vietnam, North Korea, former Soviet Union, Cuba)

3. Free Market Economy

• Economic questions are answered by individual buyers and sellers.

• Laissez Faire = Let it be• Supply and demand influence economy• People act out of self interest; motive for profit

(money) drives the economy• Also known as FREE ENTERPRISE or CAPITALISM• Ex. The United States, Western Europe, Japan

I lied!

• I said there were 3 types of economic systems, but there is a 4th!

• Mixed Economy: No economy is pure market, pure command or pure traditional, elements of each appear in all economies, some may have more elements of one economy than another.– Market – USA– Mixed – Great Britain– Command – China

Do Now

• Using your understanding of economic systems, please answer the following question:

• In your opinion, what economic system is the least effective in meeting ALL the needs and wants of its people?

American Mixed Economy

• While the US is mostly a free market economy, it does have elements of a command economy.

Example of Free MarketExample of how the free market regulates itself:If consumers want computers and only one company is making them… •Other businesses have the INCENTIVE to start making computers to earn PROFIT. •This leads to more COMPETITION….•Which means lower prices, better quality, and more product variety. •We produce the goods and services that society wants because “resources follow profits”.

The End Result: Most efficient production of the goods that consumers want, produced at the lowest

prices and the highest quality.13

The Invisible HandThe concept that society’s goals will be met as

individuals seek their own self-interest.

Example: Society wants fuel efficient cars…• Profit seeking producers will make more.• Competition between firms results in low

prices, high quality, and greater efficiency. • The government doesn’t need to get involved

since the needs of society are automatically met.

Competition and self-interest act as an invisible hand that regulates the free market.

14

15

1. Companies are greedy and do anything to screw over consumers!

• Companies have an incentive to satisfy the needs of consumers. If they don’t they will go out of business.

2. Capitalism causes companies to outsource US jobs overseas. America suffers because companies want more profit!

• How many of you lost your job to outsourcing? • How many of you benefit in the form of lower prices?3. Capitalism only helps the rich. US companies enslave and

exploit third-world workers in sweatshops!• Sweatshop workers are not forced labor. They make the

decision to work there voluntarily. Why?• Although the working conditions are far below US

standards, working in a sweatshop is better that the alternative• Sweatshop wages in Vietnam, Honduras, and Nicaragua are more than double

the country’s average wage.

Attacks Against Capitalism

Advantages and Disadvantages

1. Low unemployment-everyone has a job

2. Great Job Security-the government doesn’t go out of business

3. Equal incomes means no extremely poor people

4. Free Health Care

What is GOOD about Communism?

What is BAD about Communism?

1. No incentive to work harder

2. No incentive to innovate or come up with good ideas

3. No Competition keeps quality of goods poor.

4. Corrupt leaders5. Few individual

freedoms16

Features of America Free Market Economy

1. Economic Freedom: Individuals have the right to choose.

2. Competition: more than one producer of good/services ensures choice.

3. Private Property: Individuals have the right to own their own property, including business

Features cont

4. Self-Interest- individuals make decisions based on what is best for them.

5. Voluntary Exchange: Individuals may freely buy and sell goods

6. Profit Motive: Ind. are driven by a desire to profit(make money)

Features of American Command Economy

1. Government regulation of some business practices. Ex. Wages, labor hours, safety practice.

2. Government limits certain choices. Ex Cannot buy or produce certain goods/services.

3. Gov’t provides aid to the needy. Ex Medicare, Medicaid, welfare

My Pizzeria

• How would my pizzeria function under different economic systems?

My Pizzeria in a Free Market

• I answer the basic economic questions!• I determine how much cheese and pepperoni

goes on the pizza• I determine the quality of cheese and

pepperoni• I set my employee wages• I set my business hours

My Pizzeria in a Command Economy

• The government answers the basic economic questions

• The gov’t sets the amount of cheese and pepperoni on each pizza

• The gov’t determines the quality of chees and pepperoni

• The gov’t sets employees wages• The gov’t sets business hours• Problem: What does the gov’t know about pizza?

My Pizzeria in a Mixed Economy

• The gov’t and I both answer the basic economic questions

• I determine the amount of cheese and pepperoni on the pizza; gov’t determines the quality of cheese and pizza

• I set employee wages; gov’t set minimum wage for employees

• I determine business hours: gov’t determines whether I am safe to be open or not

The difference between North and South Korea at night. North Korea's GDP is $40 Billion

South Korea's GDP is $1.3 Trillion (32 times greater).

Homework

• Please answer the following question in a ONE paragraph response:

• In your opinion which economic system is the most beneficial for the lower, middle and upper class? You can have more than one answer