TYPES OF ECONOMIES

WHO AND WHY?

Who makes economic decisions? Who owns resources? Who provides goods and services?

Why?

Either ... or ...FREE MARKET ECONOMY

COMMAND ECONOMY(PLANNED ECONOMY)

WHOmakes economic decisions?

WHY?

Either ... or ...FREE MARKET ECONOMY

COMMAND ECONOMY(PLANNED ECONOMY)

WHOmakes economic decisions

The market: -supply and demand -sellers-buyers-producers –consumers

The state

WHY? -to allow competition and thus make the economy more efficient↓

-to provide better quality products at lower costs

-to redistribute wealth in the country more fairly-to care for public needs

Group the following expressions: government interference privately-owned companies market mechanism market reliance state-owned companies central planners laissez-faire government-run business central planning system privately-run companies government intervention USSR

PLANNED E. vs. MARKET E.

government interference

state-owned companies

central planning government

intervention USSR

market mechanism market reliance privately-owned

companies privately-run

companies laissez-faire

... or both...FREE MARKET ECONOMY(FREE ENTERPRISE ECONOMY)

COMMAND ECONOMY(PLANNED ECONOMY)

MIXED ECONOMY

WHOmakes economic decisions

The market: -supply and demand -sellers-buyers-producers –consumers

The state Both the market and the state

WHY -to allow competition and make the economy more efficient-to provide better quality products at lower costs

-to redistribute wealth in the country more fairly-to care for public needs

To benefit from both economic systems

Identify the advantages and disadvantages of the market economy as opposed to the command economy (R: p.13). - Assignment

FREE MARKET ECONOMY

COMMAND ECONOMY(PLANNED ECONOMY)

advantages

disadvantages

“The market has a keen ear for private wants, and a deaf ear for public needs.” (R. Heilbroner)

MIXED ECONOMY

PUBLIC SECTOR VS. PRIVATE SECTOR

Who provides goods and services?Why? (What is their interest?)

What do the two sectors consist of?

WHO AND WHY?

PUBLIC SECTOR VS. PRIVATE SECTOR

The government, local authorities (e.g. municipalities, counties)

Care for socially important issues of public interest (e.g. protecting environment, consumers, education)

Less profitable and unprofitable businesses

Private owners

Making a profit

Profitable businesses

WHAT DOES IT CONSIST OF?

PUBLIC SECTOR VS. PRIVATE SECTOR

State services: e.g. education, defence, social welfare, public safety, utilities

Government-owned industries: e.g. public corporations* (e.g. electricity company)

Municipal enterprises: local government, e.g. bus company

Privately-owned companies

The division is not always so clear ...

PRIVATE S.→PUBLIC S. →PRIVATE S. → ?...

nationalisationdenationalisation

privatisation

... and there may be cases of cooperation ....

PPP

nationalisation vs. privatisationAre the following arguments in favour of nationalisation or

privatisation?

1. The sale of an industry raises money for the government.

2. Competition makes an industry more efficient.3. It is socially right.4. These companies are more likely to innovate and

develop desirable products than these owned by … .

5. The government has a better control of the economy.

6. Consumers are offered more choice and better quality.

7. An industry is more efficiently managed by that sector.

What is privatization, anyway? (Read the text, find answers - R:p.24)

in the broadest sense

contractor seek though leap state enterprise issue vouchers general public

auctions public stock

offering contradictory goals raise money attract layoffs proponents argue

Homework:1. R: p.27a) fill in b)heading for each pg. 2. MK:pp.129 and 130

Compare the two texts The Role of Government: Galbraith vs.FriedmanMake clearly structured notes based on the two texts. (Use graphics to show the structure:e.g., bullet points, vs., etc., …)-Wed group: TO BE SUBMITTED IN CLASS (HANDWRITTEN)

Free market economy or state intervention in times of crisis (1)?

“Ten short days saw the nationalisation, failure or rescue of what was once the world’s biggest insurer, two of the world’s biggest investment banks, and two giants of America’s mortgage markets”

“The bankruptcy of Lehman Brothers and the sale of Merrill Lynch to Bank of America”

“government rescue of American International Group (AIG)”

The Economist, 20 Sept 2008

Free market economy or state intervention in times of crisis (2)?

“Regulation is necessary and much must now be done to improve the laws of finance”:

better oversight more transparency supervision of giants accounting that values risk better safer financial transactions

(derivatives)The Economist, 20 Sept 2008