Managing Scarcity: Economic Systems in Comparison Henry B. Stobbs, MFA Member, GATE

Copyright Notice Certain materials in this presentation are included under the fair use exemption of the U.S. Copyright Law and have been prepared with the multimedia fair use guidelines and are restricted from further use.

What is an economic system?

Economic systems… Are institutional frameworks of formal and informal rules that societies use to determine what to produce, how to produce, and how to distribute goods and services.

There are only two (maybe three) major kinds of economic systems… Do you know what they are?

The major kinds of economic system are… Command Economies In which most economic issues of production and distribution are resolved through central planning and control. Sometimes, these are called planned economies.

Another kind… Market Economies Which rely on a system of interdependent market prices to allocate goods, services, and productive resources and to coordinate the diverse plans of consumers and producers, all of them pursuing their own self-interest.

Another kind… Traditional Economies Which are based on custom. They rely on “primitive” methods and tools, inherited wealth, inheritance as an allocation method, hunting-gathering, and subsistence farming. Any surplus produced in a traditional economy is traded for goods the members of the society cannot produce for itself.

Time to watch the Show!

The Show!

Everyone’s all mixed up! There is no such thing as a pure market economy or a pure command economy. All nations rely on some combination of command and free-market systems to manage the economizing problem. Therefore, really, all economies are mixed economies.

Characteristics of Modern Economies Modern economic planning is concerned with creating economic policy. Economic policy can be broken into about seven major areas of concern:

They are… Efficiency – Optimal use of scarce resources; preventing waste and ensuring most benefit for least cost

Next… Equity – People within society are treated equally and fairly.

Then, there’s… Freedom – Individuals’ economic freedom of choice is protected and fostered. The power of government and other interest groups is limited.

And… Full employment – Resources, including workers, are being used to capacity. In practice, this means keeping unemployment levels around 5%.

Coming up next, is… Growth – Increasing the productive capacity of the society.

Next to last on the list, is… Security – Protecting individuals against such economic risks as unemployment, bank failure, poverty, business failure, etc.

And, finally… Stability – Maintaining an economic environment characterized by little or no inflation and no rapid price fluctuation.

Recipes for Success, or … There are many recipes for how these seven ingredients are combined… some yield yummy results, and everybody gets to eat plenty of tasty economic cake…

But… Sometimes, the ingredients aren’t put together very well, or a key ingredient gets left out, or there’s too little of this and too much of that, and…

And then, all we get is…

Works Cited Introduction to Capitalism. Sunburst Visual Media. 2001 Learn360. 18 September 2009. NCEE. Virtual economics (V.3). New York: 2008, National Council on economic education. Pennington, Robert L. Economics. Austin: 2003, Holt, Rhinehart & Winston.