Ch. 2: Economic Systems and Decision Making Lesson 1: Economic Systems

Add to notes BEFORE table The survival of any society depends on its ability to provide food, clothing, and shelter for its people. All societies have something else in common: They have an economy or economy system – an organized way of providing for the wants and needs of the people.

Sketch the Table drawn on the board in your notes!

Economic Systems 1. Traditional 2. Command 3. Market Fill in your table!!

Traditional Economy (fill in table). The allocation of scarce resources, and nearly all other economic activity, stems from ritual, habit, or custom. ADVANTAGES: Everyone knows which role to play, you produce what your family had always produced. DISADVANTAGES: Discourages new ideas and new ways of doing things. Examples: Inuit of Northern Canada, African Mbuti Tribe, Australian Aboriginals

Command Economy (fill in table). One in which a central authority makes most of the What, How, for Whom decisions. Economic decisions are made by the government: the people have little, if any , influence over how the basic economic questions are answered. Advantage: command economy can change direction quickly!! Disadvantage: Leaders of command economies usually provide for themselves as the expense of the population, loss of individual freedoms. Examples: the former Soviet Union, Cuba, Vietnam.

Market Economy (fill in table). Capitalism – where private citizens own and use the factors of production for their on profit. People and firms act in their own interests to answer the WHAT, HOW, AND WHOM questions.

Market Economy (cont.) Advantages: Over time, it can adjust to change, its high degree of individual freedom, relatively small degree of government interference, variety of goods and services available to consumers. Disadvantages: It does not provide for the basic needs of everyone in the society, it does not provide enough of the services that people value highly (defense, education) so, the government must provide these services, paid for by tax dollars, relatively high degree of uncertainty that workers and businesses face as a result of change. Examples: United States, Canada, Great Britain

Lesson 2: Mixed Economies

Mixed Economies – Economic systems where tradition, command, and markets each answer some of the WHAT, HOW, and FOR WHOM questions. A MIXTURE of the 3 you learned about in Lesson 1.

Traits of a Mixed Economy Most countries have mixed economy. However, a Mixed Economy is not an economic system but rather a blending of two different types of systems. The government controls large industries, while private individuals control small businesses. Citizens are taxed heavily to provide all citizens a social safety net such as welfare, free university tuition and free health care.

Examples of mixed economies France Health care is free, university costs very little if you get in (many do not) and taxes are high. However, there are also private industries based out of France like Air France and Peogeot (car company).

Great Britain In United Kingdom health care is free, university is cheap, but citizens can purchase private health insurance and attend private universities if they choose.

The United States The U.S. has always had a mixed economy, it is a mixture of capitalism and socialism.

Criticism of Mixed Economies Higher unemployment rates and lack the same number of entrepreneurs as market economies. Raising taxes in order to sustain social welfare programs like the Affordable Care Act, trying to keep university costs low.

Which economic system is best? The market system has proven to be best because it promotes the goals of growth, freedom, & efficiency. Command and traditional systems sometimes offer more security but are not nearly as strong in efficiency, growth, freedom, and environmental quality.

Lesson 3: The Global Transition to Capitalism

1. Capitalism is the most powerful engine for generating wealth. Why Capitalism? 1. Capitalism is the most powerful engine for generating wealth. 2. It has improved nearly everyone’s standard of living.

Problems with Transition… Privatization – the conversion of state owned factories and other property to private ownership. Loss of Political Power. Responding to new incentives. Understanding the cost.

Countries and Regions in Transition: Russia In Russia, the decades- long transition to capitalism has resulted in the current market-based economy, with the exception of government- controlled energy, natural resource, and defense- related industries. Five-Year Plan, Gosplan and perestroika

China After the failure of the Great Leap Forward, China was influenced by successful market economies in Asia and today is undergoing a great deal of privatization and other capitalistic endeavors.

Former “Eastern Bloc” countries After the Soviet Union collapsed, many Eastern European countries transitioned to capitalism, including Poland, Hungary, the Czech Republic, and Slovakia. Solidarity, European Union (EU), Black Market

Japan Compared to the U.S. government, the Japanese government is much more involved in the day-to-day activities of the private sector. Keiretsu