Welcome to class… Several auto companies traveled to Washington, DC in 2008 to ask the US government to take over parts of their companies to keep them from failing. Journal: How would a country with a market economy respond? How would a country with a command economy respond? How would a country with a mixed economy respond?

Comparing Economies The four basic economic questions are What to produce How to produce For whom to produce How much to produce Different countries answer these questions in different ways, depending upon what type of economy they have

Market Economies Adam Smith – The Wealth of Nations Decisions are made in free markets based on supply and demand of a product. Capitalism is another word for this type of economy Private citizens own the factors of production Businesses decide the answers to the basic economic questions What are these questions?

Market Economies Consumers decide what to buy The market economy is decentralized because all people in the economy make decisions, not the government Therefore, the market seems to run itself. Another term for this is laissez-faire economics Laissez-faire is French for “to let alone”

Market Economies Market economies generally have high per capita GDP: average amount of good produced per person in the country Pure market economies don’t really exist, because most governments have some power in their economies. Why is it important for the government (rather than private businesses) to provide public goods such as national defense and a system of law?

Government’s Role The government provides for public goods that all citizens are entitled to Ex: the justice system, public education, and national defense are goods that assure rights and freedoms The government makes sure the markets stay competitive by regulating businesses The government also deals with unintended side effects of the markets Ex: They work to reduce pollution from factories

Command Economies Individual has no influence over the economy In this centralized system, the government makes economic decisions (it commands what producers should make; answers the basic economic questions) Government owns land and capital factors of production. It also sets the wages for workers and the prices of products Slow growth – low per capita GDP

Socialism Type of command economy Believe that capitalism should be eliminated to help the oppressed Production should be owned and controlled by society instead of individuals, sometimes directly by the government Socialists felt this system would lessen income inequalities by distributing wealth among citizens

Communism Type of command economy Karl Marx- The Communist Manifesto (a socialist) predicted an inevitable and violent class struggle where workers (or the proletariat) would revolt and overthrow the people who owned production (bourgeoisie) Communism hoped to create a single class where property would be owned by all people and a government would eventually be unnecessary

Mixed Economy Traditional Economy Combine principles of market and command economies Individuals freely operate in the economy but are subject to some government intervention Traditional Economy Based largely on bartering (haggling over price) and trade (instead of money). Families work together. Usually poor, slow growth, and low GDP.

Posters! Create a poster about one type of economy. Choose from Market Economy or Command Economy. Use your notes and your chart from yesterday. You must include: Name of the economy Definition of the type of economy Other names it is called (at least 3) Who makes the basic decisions in the economy? Main person & book associated with the economy High or low growth (GDP)? A drawing that represents the economy