ECONOMIC SYSTEMS Chp 3 TCI

Who gets what? How do societies decide? Scarcity forces tradeoff Principle Forces societies to choose what to have and what to give up The larger the society, the more numerous and complex the choices become

Three Economic Fundamental Questions Question 1 What goods and services are to be produced? Recreational trails or logging? Sneakers or diapers Car parts of skyscraper beams Agriculture or tourism

Question 2 How are goods and services to be produced? Land, Labor Capital

Question 3 For whom are goods and services to be produced? Based on ability to pay Equal distribution to all First come, first served Distribution according to need

Answer to the Three Economic Fundamental Questions The economic goals of the society pg 39-41 Read the pages out of the textbook Rate the six economic goals in order of importance Be prepared to share your list and tell why you ordered them the way you did

Recap - Economic Goals Economic Freedom – make decision without government interference Economic Efficiency – society makes the most of its resources with least amount of waste, full employment Economic Equity – fair and just distribution of wealth

Economic Growth – improving standard of living Economic Security – supports less fortunate with food, shelter and health care to live decently Economic Stability – goods and services we count on are there

Who decides what in different economic systems? By answering the three fundamental economic questions, every society develops an economic system. An economic system is the way a society coordinate the production and consumption of goods and services.

Three Types of Economies

Traditional Economy Custom and tradition dictate what to produce, how to produce it and for whom Ancient economies Maasai of East Africa – semi-nomadic herding people Livestock, cattle Wealth measured in cattle and children Maasai diet=meat, blood and cow’s milk Men and women have distinct roles Men protect cattle Women milk cattle

Highest goal of traditional society Economic stability Economic security Traditional economies difficult to maintain Globalization Modern world encroaching

Ancient Command Economies Economic decisions are made by a powerful ruler or some kind of authority Kings, pharaohs, emperors Primary goal to accumulate wealth and goods for the ruling class

Modern Command Economies Socialism Property to be owned by the society as a whole for equal benefit of all Communism Political and economic system where all proper and wealth are own by all members of society Government is no longer needed to keep order Based on ideas of Karl Marx First successful Communist Revolution – Russia, 1917 Economic planning done by government Did not turn out as Marx envisioned

Modern Command Economies Economic equity and security – important goals (Russia) Planning committees couldn’t keep up Shortages common Common wages No one could be fired, slackers No goods to buy

Market Economy (aka Capitalism) Depends on the decisions of individual producers and consumers “the market” is the buyers and sellers exchanging goods and services Free market economy – no government interference Goals are economic freedom and efficiency Choices Can pursue jobs Adam Smith’s “invisible hand”

Circular Flow Model of Market Economy

Mixed Economy Government creates balance for free market Legal system Currencies Enforce socially acceptable market rules Public works (roads, sewage, dams and other) Government Participation Taxes Uses factors of Production to produce and distribute goods and services

Circular Flow Model of Mixed Economy

US ECONOMIC SYSTEM KEY CHARACTERISTICS Economic freedom (laissez-faire economy) Competition Equal Opportunity Binding contracts Property Rights Intellectual property rights Patent (20 yrs) Copyright (70 yrs beyond life of artist) Profit motive

Limited government Protects property rights and contracts Promotes general welfare Preserves competition Protects consumers, workers, environment Stabilizes economy

Market Economy

Mixed Economy