Aim: How is a centrally planned economy organized? DO NOW: When someone tells you to do something you don’t want to do, what are the results? Why do you think Communism failed in Russia?

Adam Smith and Capitalism Wrote book called The Wealth of Nations Progress results when individuals follow their own self interest Laissez-Faire: government should not interfere in the economy

Government answers the three key economic questions What? How much? To whom? Who is producing?

Think Can you foresee any problems with the government answering the three economic questions?

Theories of centrally planned economy Socialism theory that everything should be distributed evenly throughout society (can still allow democracy) Bernie Sanders Democratic Socialist

Theories of centrally planned economy Communism a centrally planned economy with all political & economic power resting in the hands of a central government (totally authoritarian)

Theories of centrally planned economy Authoritarian government requiring strict obedience to an authority, such as a dictator.

Soviet Union– communist society until 1989 Collectives Large farms that required peasants to produced. Food lines, shortages and people starving

Explain Capitalism and communism stand at opposite poles. Their essential difference is this: The communist, seeing the rich man and his fine home, says: 'No man should have so much.' The capitalist, seeing the same thing, says: 'All men should have so much.'”   “Communism is like Prohibition, it's a good idea but it won't work”

Problems with central economies Cannot meet the needs or wants of consumers. Workers lack any incentive to work hard. No reward for innovation. Personal freedoms are given up for society.

Market Economy Advantages Disadvantages Allows for creative production to meet consumer demand Government regulation protect the consumer Competitive production affects prices Collective Bargaining procedures allow workers to have a in their working conditions There may be shared ownership Disadvantages Possible periods of unemployment Private industry can withhold the supply of goods to bring about a higher price

Command Economy Advantages Disadvantages Full employment Production goals can be set and all the nation’s energies may be directed to reach these goals No disruption of production due to labor disputes Efficient placement and us of workers Major industries such as transportation, communication, and utilities are under government control therefore allowing them to be available on a relatively timely basis Disadvantages Production does not respond to the consumer Workers have little say in their working Very little mobility either choosing or changing jobs Goods continue to be produced even if they are defective or not in demand Inefficient use of workers