Market and Command Economies

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Presentation transcript:

Market and Command Economies Broad Economic Goals Market and Command Economies

Standard CA SSCS 12.1: Students understand common economic terms and concepts, and economic reasoning. Analyze the role of a market economy in establishing and preserving political and personal liberty (e.g., through the works of Adam Smith).

Objectives Students define the six broad social goals of an economic system …discuss and evaluate the relative importance of the six goals in different economic systems …evaluate various public policy actions with respect to their impact on the American economy and the achievement of the six goals

Economic Efficiency Essentially, how well productive resources are allocated and, once distributed, how well inputs are combined into products people want and need

Economic Efficiency In command economies, resource allocation is determined by the central government; resources are redirected quickly, but businesses are often inefficient Ex: Cuban government purchases crops from farmers at a price that is fair for the government, not the farmer. In market economies, supply and demand (producers and consumers) determine allocation; redistribution of resources can be tedious, but business production must be efficient

Economic Equity Means what is fair. This can be seen as an equality of opportunity or an equality of outcome

Economic Equity In command economies, wages are often set by the government providing an equality of outcome In market economies, equality of opportunity is emphasized; success is not guaranteed. In other words, you’re not guaranteed to be successful if you open your own business.

Economic Freedom Consumers ability to decide for themselves how to spend or save their income, when to change jobs, or when to open or close a business

Economic Freedom In command economies, many decisions are made by central planners, since government owns most productive resources In market economies, private ownership of resources is emphasized. Entrepreneurs decide what products to produce based on the needs of the marketplace.

Economic Growth Increasing the production of goods and services over time using Gross Domestic Product (GDP); a growth rate of 3-4% a year is considered sustainable

Economic Growth In command economies, growth targets are set and interpreted by central planners In market economies, encourage specialization along with avoidance of waste

Economic Security Protecting consumers, producers, and resource owners from risks that exist in society. Each society must decide from which uncertainties individuals can and should be protected

Economic Security In command economies, pensions, housing, health care, jobs, and income provided or guaranteed by the government In market economies, consumers generally responsible for their own security; some programs address anomalies in the economy

Economic Stability Maintaining stable prices and full employment while keeping growth reasonably smooth and steady

Economic Stability In command economies, no unemployment, prices usually set below market to ensure everything produced is sold In market economies, some unemployment is tolerated; fiscal and monetary policies are used to prevent unemployment and inflation

Discussion Questions 1. What economic system offers more freedom? 2. What economic system offers security? 3. What is equity? 4. What system offers greater equity? 5. Increasing taxes would reduce economic ________, but if a portion of the taxes collected were devoted to paying retirement pensions this would increase economic ________.

Writing Prompt Would you rather live in a society that offers more economic freedom or economic equity? Explain why and defend your answer. 1-2 paragraphs Due Tuesday