Moore Economics notes Those notes were prepared specifically for the students of my ECONOMICS class. Any other user or use is at the reader’s discretion. RM ACCOUNTS ED

THE CENTRAL PROBLEM OF ECONOMICS Theoretical Approaches to solving the economic problem faced by all societies. Economics Unit 1 obj. 6 & 7 RM ACCOUNTS ED

An economy the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services. RM ACCOUNTS ED

An economic system is ….. those institutions which a given people or nation has chosen or accepted as the means through which the scarce resources are utilized for the satisfaction of their (unlimited) wants. the way in which the resources of a country are used to service the needs and wants of its people. the political choice of a people in their approach to solving their economic problem. RM ACCOUNTS ED

What is the economic problem? How to allocate the country’s scarce resources in order to satisfy the unlimited demands of its citizens.   One would need to know What to produce? How to produce it? For whom it should be produced? RM ACCOUNTS ED

Types of economic systems Traditional economies Planned economies (central or command systems ) Communism socialism totalitarian Unplanned economies (free-enterprise or free-market systems) capitalism Mixed economies (shared or joint systems) Mixed (command + capitalism) RM ACCOUNTS ED

traditional economic systems Are controlled by customs, traditions and other cultural norms. Generally nomadic and superstitious. Examples: Tribes in Artic (Inuit) Tribes in Amazon RM ACCOUNTS ED

Planned economic systems The resources are controlled by the central planning authority [i.e the state (or government)], who is responsible for all the decision making and economic activity, as they alone knows what is best way to use the resources. Examples: Cuba China North Korea RM ACCOUNTS ED

characteristics Focuses on the welfare of all of its citizens State decides on the price and quantity of goods to be produced (when, what, and where). Wages and prices are controlled by the state All citizens are seen as equal All economic profits are shared amongst the people Wasteful competition is avoided RM ACCOUNTS ED

drawbacks Success depends on how accurately the state [CPA] can forecast future demand or supply. Resource inefficiency often occur because market forces are ignored. [frequent slumps and excess] There is no freedom of choice Subject to corruption because they are so few decision makers. There is no incentive to achieve better The structure is inflexible There is too much bureaucracy and wastage of man power trying to match output with demand. RM ACCOUNTS ED

Unplanned economic systems This system allows private citizens to own and control the country’s resources; and to use them to their maximum effect. In other words, private economic agents pursue their own self interest. RM ACCOUNTS ED

characteristics The resources are owned by private citizens There is very little government interference. Price and wages are determined are determined by the invisible market forces. People are driven by the profit motive There is complete freedom of choice Competition is greatly encourage RM ACCOUNTS ED

drawbacks The rich gets richer whilst the poor gets poorer [some people own too much, other too little] People go after the profits and ignores welfare The profit-price mechanism overproduces some products and under produces others [i.e a boom and slump trade cycle] Pollution and squandering becomes a problem due to the extreme competitiveness of the economic agents. RM ACCOUNTS ED

Mixed economic systems This is a system where the government and the citizens work together to manage the affairs of the economy (public sector and private sector working together). [ its like introducing greater government input in a free-market economy] RM ACCOUNTS ED

characteristics The state looks after the welfare of the people The people own most of the resources Enterprise is supported by government efforts State imposes regulations to reduce inequality or threats from external forces on the economic resources. There is freedom of choice Prices and wages are bargained for Every effort is made to reduce exploitation. [use price controls, ceilings and floors] Wealth is redistributed via taxes and social welfare systems [education, transport, health] RM ACCOUNTS ED

drawbacks Private citizens don’t always comply with government regulations in areas of production Taxation becomes a burdensome tool used to extract funds from the citizens for government projects Generally small economies are void of capital required to improve the country State may nationalize or divest some of the resources in search of greater efficiency. RM ACCOUNTS ED

economics When discussing economic statements, one should be mindful of what is being said. An economic statement can be POSITIVE. That means what has been said is FACT and not an opinion. It is an objective statement and can be tested for its substance. [e.g raising the level of income tax will result affect consumer spending] An economic statement can be NORMATIVE. That means what has been said is OPINION and not a fact. It is a subjective statement and cannot be tested for its substance. [e.g the only way to improve the economy is to impose protectionist policies] So just be careful when you enter into economic discussions. RM ACCOUNTS ED

To strengthen your understanding of this topic Surf the internet or newspapers for any article(s) that highlights economic and social life in selected countries with different economic systems or approaches to solving their economic problem. Choose any six: Barbados USA China Cuba Australia North Korea Iran Afghanistan Trinidad England Sudan Chile Venezuela Israel Nepal