INTRODUCTION TO ECONOMICS Section 1: Core Concepts PLANNED ECONOMIES vs FREE MARKET ECONOMIES

THERE ARE THREE DISTINCT ECONOMIC SYSTEMS, BUT THERE ARE THREE DISTINCT ECONOMIC SYSTEMS, BUT... No country is purely communist or purely capitalist. PLANNED ECONOMIES FREE MARKET ECONOMIES Mixed Market Economic System Most modern western developed countries can be described as a Mixed Market Economic System.

ECONOMIC SYSTEMS CAN BE COMBINED WITH POLITICAL IDEOLOGY On the above spectrum or on the previous model where would you place the following countries Australia, United States, France, Sweden, North Korea, Vietnam, Venezuela, China, Cuba.

What are the major beliefs of Communism?

What did the second world represent? Is this map still true today? How would you justify this position?

Identify all the symbolism in this communist version of monopoly.

Identification of Communist Symbolism (Write Answers Here)

When and where do you think this document was published? Which of the following objectives destroys creativity and innovation in the economy? Identify any language in the Communist manifesto that you do not fully understand.

What does this cartoon imply?

What is the said regarding ownership in this cartoon?

What does this cartoon imply about the demise of communism?

Communism in China – How is it different to Cuba?

What advantage may former communist countries have over their long established capitalist rivals?

Explain the central message from this cartoon.

Why did communism fail?

Rationing Systems Planned Economies In a planned economy or centrally planned economy decisions as what to produce, how to produce and tho who to produce for are made by a central body – the Government. All resources in theory are collectively owned. Government bodies arrange all production, set wages and set prices through central planning.

Rationing Systems Planned Economies The quantity of decisions to be made, data to be analysed and factors of production allocated is very complex and therefore central planning is very difficult. If one then adds the needs to plan ahead for future events, the task is almost impossible to achieve with any decent level of efficiency.

Rationing Systems Planned Economies In the 1980s, almost one third of the population of the world lived in planned economies, mainly in the USSR and China. In the 21st century there are very few countries that rely solely on planning Even in China which operates a predominately planned system, elements of the free market are becoming very common and are being encouraged in many sectors.

Rationing Systems Planned Economies Chronic Shortages in Planned Economies As a result of planning problems and an emphasis on industrial production there were chronic shortages of consumers goods and in the Soviet Union queues were an everyday part of life. It is estimated that a Russian woman would spend two hours every day lining up to buy essential goods.

Rationing Systems Free Market Economies In a free market economy sometimes called a private enterprise economy or capitalism prices are used to ration goods and services. All production is in private hands and demand and supply determines wages and prices in the economy. (However, minimum wage laws may still apply.) The economy should work relatively efficiently and there should be few cases of surpluses or shortages.

Rationing Systems Free Market Economies Individuals make independent decisions about what products they would like to purchase at a given prices and producers then make decisions about whether they are prepared to provide those products. The producers decisions are based on the likelihood of profits being made. If there are changes in the pattern of demand there will be changes in the pattern of supply in order to meet the new demand pattern

Rationing Systems Free Market Economies A change in demand of consumers sends “signals” that bring about a chain of events that re-allocate factors of production. This process makes sure that the wishes of consumers are met. The free market is self-righting system.

FIVE CHARACTERISTICS OF A CAPITALIST/MARKET ECONOMY Self Interest/Profit Motive The main stimulus for: spending one’s income wisely, economic effort and risk taking in productions. Private Ownership Individuals determine the use of resources. The Price Mechanism The interaction between supply and demand answers the economic problem. Freedom of Enterprise exists The entrepreneur is free within the law to produce any goods, the wage earner can choose any job, the consumer is free to allocate his/her income as desired. Limited Government Intervention Government Intervention occurs to varying degrees, meaning the above features are not absolute. The role of government is to provide, protect, regulate and compete where the need arises.

DISADVANTAGES: FREE MARKET VS PLANNED ECONOMY (Source: Blink & Dorton, 2007: 19)

Source: Blink & Dorton, 2007: 19.

ADDITIONAL TERMINOLOGY IN CLASSIFYING ECONOMIC SYSTEMS Transition Economies Some countries which were predominantly centrally planned are moving towards a more market oriented balance in their economic systems. Hungry, Poland and Russia began moving towards a market oriented system in the late 1980s and early 1990s.

Subsistence economies feature: an absence of markets ADDITIONAL TERMINOLOGY IN CLASSIFYING ECONOMIC SYSTEMS SUBSISTENCE/BARTER / PRIMITIVE ECONOMIES Subsistence economies feature: an absence of markets an absence of money very little specialisation a low level of technology or industrial skills very little saving & therefore little accumulation of capital. relatively low standards of living. little possibility of trade absence of industry and infrastructure. wealth is determined by one’s status in society. property and resources are `owned` communally.

SUBSISTENCE/BARTER OR PRIMITIVE ECONOMIES Location of Subsistence Economies Frequently found in the more inhospitable areas of the world. No country in the world has an entirely subsistence economy, but many countries may have a significant proportion of their population living a subsistence lifestyle.

SUBSISTENCE/BARTER OR PRIMITIVE ECONOMIES Location of Subsistence Economies Often found in the desert, mountain and jungle regions, particularly in the continents of South America, Africa and Asia.

SUBSISTENCE/BARTER OR PRIMITIVE ECONOMIES SOLVING THE ECONOMIC PROBLEM What to produce? usually based on family or tribal decisions as to what is required for subsistence. How to produce? very labour-intensive methods that provide an occupation for all members of the group and use simple forms of capital equipment, such as nets or hoes. Whom to produce? for themselves.