THE THREE TYPES OF ECONOMIC SYSTEMS

INTRODUCTION We all need goods and services: BASIC NEEDS – the same in the developed societies of the western world as they are for tribal societies in the remote parts of the developing world → food, water, shelter, clothes, warmth. WANTS – we do not really need, but are pleasant to have ( a car, a phone, a microwave…) → we have to set priorities → COMPETING WANTS

WANTS OR NEEDS?

THE FUNCTION OF ECONOMY allocate resources (land, labour, machinery, capital, etc.) which are scarce amongst unlimited wants solve basic economic problem: WHAT SHOULD BE PRODUCED? HOW SHOULD IT BE PRODUCED? FOR WHOM SHOULD IT BE PRODUCED? WHO CAN MAKE THESE DECISIONS? the government the market system both

WHO AND WHY? Who makes economic decisions? Who owns resources? Who provides goods and services? Why?

READING – THE THREE TYPES OF ECONOMIC SYSTEMS, RB p 30 I Read the text and find out the answers to the questions from the previous slide. II Make notes on the text with the help of the table on p 31.

READING, RB p 30 – DO YOU REMEMBER THE ANSWERS? MARKET ECONOMY resources are a________ by the market mechanism (s________ and d________) stimulates c________ → lower costs, a wider c________ of goods and services and a better quality for c________ the role of government is l________: provides p_______, national d________ and j________ and ensures a l________ p________ f________ (fair competition) ADVANTAGES AND DISADVANTAGES competition makes the economy more e________ better q________ products at lower costs some goods and services are not p________ by private firms only interested in making a p________ may sacrifice p________ interest in exchange for lower c________

COMMAND ECONOMY – DO YOU REMEMBER THE ANSWERS? the government p________, o________ and c________ the production process production of s________ goods with little v________ and choice for consumers r________ belong to the state goods and services are d________ to consumers by the state ADVANTAGES AND DISADVANTAGES more equal distribution of w_______ and i_______ production is for n_______ rather than for profit people tend to be less m_______ to work efficiently the s_______ of living is often lower

GROUP THE FOLLOWING EXPRESSIONS. government interference privately-owned companies market mechanism market reliance state-owned companies laissez-faire government-run business central planning system privately-run companies government intervention USSR

PLANNED ECONOMY vs. MARKET ECONOMY market m_________ market r_________ p_________-owned companies privately-r_________ companies l_________-faire government i__________ central p_________ s__________-owned companies U__________

PLANNED ECONOMY vs. MARKET ECONOMY government interference central planning state-owned companies government intervention USSR market mechanism market reliance privately-owned companies privately-run companies laissez-faire

MIXED ECONOMY PUBLIC SECTOR VS. PRIVATE SECTOR Who provides goods and services? Why? (What is their interest?) What do the two sectors consist of?

MIXED ECONOMY – DO YOU REMEMBER THE ANSWERS? some resources are allocated by the g_________ (the p_________ sector) and the rest by the m_________ (the p_________ sector) the state provides a m_________ standard of living for those unable to work the public sector provides p________ goods and services (decided by the c________ or local g________) public goods are usually free if paid for by t________ the private sector provides p________ goods and services a________ by the market system private firms own the m________ of production and make production d_________ the government should ensure f_________ competition in the private sector

MIXED ECONOMY PRIVATE SECTOR PUBLIC SECTOR private goods and services are sold through the market mechanism production decisions are made by firms in response to consumers private owners making a profit profitable businesses merit goods (education, health) and public goods are decided by the government or local authorities (e.g. municipalities, counties) Care for socially important issues of public interest (e.g. protecting environment, consumers) Less profitable and unprofitable businesses

VOCABULARY – RB, p 31 & 32 Do the tasks III, IV, V & VI in the Resource Bank.

TYPES OF ECONOMIES – LET’S RECAP! FREE MARKET ECONOMY (FREE ENTERPRISE ECONOMY) COMMAND ECONOMY (PLANNED ECONOMY) MIXED ECONOMY WHO MAKES 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

TYPES OF ECONOMIES – LET’S RECAP! PLANNED FREE MARKET MIXED _____________ _____________ Planned economy is an economy in which __________________ ______________________________________________________ Free market economy is an economy in which ______________ Mixed economy is an economy in which ___________________

HOW DO THESE CARTOONS RELATE TO DIFFERENT TYPES OF ECONOMIC SYSTEMS?

MARKET OR CAPITALIST ECONOMY ADVANTAGES ☺ DISADVANTAGES ☹ ______ people are able to be productive and make great profits which may result in greater innovations and efficiency because of competition ______ What happens to the goods and services which do not make instant profit (e.g. education, health care...)? ______ the price system helps to match demand and supply so shortages and surpluses are avoided ______ people spend too much money on unnecessary things → consumerism, and not enough on merit goods which have long-term benefits

ADVANTAGES ☺ DISADVANTAGES ☹ ______ people are able to produce and consume whatever they can afford → wider choice of goods and services, lower costs and better quality for consumers ______ manufacturers could ignore the safety of the workers, environmental issues (pollution) and go only after profit ______ there is less bureaucracy because the government has no part to play ______ unequal distribution of wealth and income → some people are becoming too powerful and rich → greater social differences

ADVANTAGES OR DISADVANTAGES?

ADVANTAGES OR DISADVANTAGES?

PLANNED OR COMMAND ECONOMY ADVANTAGES ☺ DISADVANTAGES ☹ ______ the distribution of wealth and income is more equal → no individual can become very rich ______ demand and supply are disregarded → shortages of goods and services ______ production is for need rather than for profit ______ low quality of goods and sevices because of no competition ______ unemployment can be avoided because the state owns and controls the means of production

ADVANTAGES ☺ DISADVANTAGES ☹ ______ standard of living is usually lower compared with countries which use other types of economic systems ______ the state can redistribute profit to provide benefit for all the people ______ government can control the working conditions to make them safe for the workers ______ no private monopolies (where one firm controls most of the output and the market share) ______ no motivation on the part of the workers

ADVANTAGES OR DISADVANTAGES?

Which of these are command economies today? Cuba, North Korea and Laos

WHAT DOES THE FUTURE HOLD FOR US?