Please take out your openers & your 1.3 Study Guides Economic Systems Please take out your openers & your 1.3 Study Guides Monday, January 11th

Unit 1, Opener #2 Suppose the owners of a car manufacturing company are thinking about entering the motorcycle production business How can a Production Possibilities Curve (PPC) help them make a decision on how much they can produce? What four factors must be true in order for the PPC to be true?

Types of Economic Systems What is an economic system? Defined: The way society uses its resources to satisfy people’s wants Usually economic systems are connected to the country’s government There are three basic systems Traditional Economies Command Economies Market Economies Usually a society’s economic system features parts of each of these systems These economies are called mixed economies

System #1: Traditional Economies Traditional economies center on families, clans, or tribes decisions are based on customs and beliefs Methods of production are passed from generation to generation Everyone has a set role; no chance of deviating from pattern Good of the group always comes before individual desires The goal is basic survival Under threat of constant change from the outside

System #1: Traditional Economies

System #2: Market Economies Defined: An economy driven by choices of consumers and producers General Information Consumers spend money, go into businesses they want, and purchase services as they wish Producers decide how to use their resources to make products that will earn them the most money Consumers, producers benefit each other when they act in self-interest

System #3: Command Economies Defined: Economic system where the government makes economic decisions Government determines what to produce, how to produce, and who gets products The wants of individual consumers are rarely considered Government owns means of production What are the means of production? Land, Labor, Capital, Entrepreneurship

Government Controls in Command Economies Command Economies have a centrally planned economy Centrally planned economy: The central government makes all decisions The government decides for whom to produce in part by setting the wages on all workers This allows only some people have money to buy available products

Government Controls in Command Economies EXAMPLE: Government Planning In all societies, the government has some control over people’s lives Can you think of examples in the United States? In centrally planned economy, government has a great deal control They determine which businesses to operate, and the amount of product to be made each month They also determine who is employed, how long they have to work, and how much they will be paid

Origins of Command Economies History 19th Century German Philosopher Karl Marx Basic Beliefs Marx lived during Industrial Revolution Marx believed that society was split between the haves and the have-nots He believed that factory owners used workers as resource and didn’t pay them what they deserved He believed that the workers would rebel and establish classless society The perfect society would exist when all resources in a state are shared equally amongst all individuals Became the basis of two separate economic ideas, socialism and communism

Socialism Defined: An economic system in which the government owns some or all of the factors of production Private industries exist along with government- controlled industries Example: Cairo, Egypt Country begins running out of flour Government controls flour distribution to private bakers Bakers sell inexpensive bread to the public

Communism Defined: An economic system in which the government owns all of the factors of production and there is little to no political freedom Government controls all aspects of production and controls how much each person receives of a given item Example: Soviet Union Government focus on industrialization and militarization rather than social welfare Millions do not receive enough food and starve

Problems of Command Economies In theory, command systems fair to everyone; In practice, many disadvantages Specific disadvantages include: The central planners do not understand local conditions The workers have little motivation to be productive or conserve resources The artificially low prices lead to shortages As a result, the people suffer due to these shortages of key goods

Command Economies Today No pure command economies today Modern technology has brought about change Some economies still have mostly command elements North Korea Communist North Korea used resources for military, not necessities built large army; nuclear weapons program In 1990s and early 2000s, millions died of hunger, malnutrition In 1990s, production decreased and economy shrank Since 2003, some market activity allowed