INTRODUCTION ECONOMIC SYSTEMS Al Muizzuddin Fa Kelas FISIP – Ilmu Politik 2014

Ketua Kelas Tugas: menyiapkan absen Mengkoordinasi Kelas

Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources. Oil & fuel Land Doctors Technology

Economic Resources Natural Resources – raw materials found in nature that are used to produce goods Human Resources – people’s knowledge, efforts, and skills used in their work Capital Resources – used to produce goods and services (buildings, materials, and equipment) Entrepreneurial Resources - recognize the need for new goods or service Scarcity – shortage of resources

Nations use economic systems to determine how to use their limited resources effectively. Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life. Different types of Economic Systems Traditional Economy Market Economy (free enterprise) Command Economy Mixed Economy

Traditional Economy Found in rural, under- developed countries– Vanuatu Pygmies of Congo Eskimos & Indian tribes Belarus Customs govern the economic decisions that are made Farming, hunting and gathering are done the same way as the generation before Economic activities are centered around the family or ethnic unit Men and women are given different economic roles and tasks Advantages: people have specific roles; security in the way things are done Disadvantages: Technology is not used; difficult to improve

Also called a Free Market Economy or Free Enterprise Economy Businesses and consumers decide what they will produce and purchase and in what quantities Decisions are made according to law of supply & demand Supply and demand of goods and services determine what is produced and the price that will be charged. Advantage—competition to have the best products and services Disadvantage—huge rift between wealthy and poor Note: a true market economy does not exist.

The government (or central authority) determines what, how, and for whom goods and services are produced. Two types: Strong Command – where government makes all decisions (communism – China, Cuba) Moderate Command – where some form of private enterprise exists but the state owns major resources (socialism – France and Sweden) Advantages Guarantees equal standard of living for everyone Less crime and poverty Needs are provided for through the government Disadvantages Minimal choices Fewer choices of items No incentive to produce better product or engage in entrepreneurship Also known as a Planned or Managed Economy

Combination of a market and a command economy Government takes of people’s needs Marketplace takes care of people’s wants. Most nations have a mixed economy: United States, England, Australia Advantage—balance of needs and wants met by government and in marketplace Disadvantage—citizens have to pay taxes

The economic system is viewed as multidimensional and as capable of being characterized by the following five characteristics: 1. The organization of decision-making arrangements: centralized, decentralized, mixed. The concepts of centralization and decentralization are defined in terms of the distribution of authority and the utilization of information in an economic system. Principal-agent problem is also discussed. 2. Mechanisms for providing information and for coordination: market versus plan. Market and plan are compared with respect to who makes decisions in the system, that is, consumer sovereignty versus planners’ preferences. 3. Property rights: public, cooperative, private. Property rights are defined in terms of rights to use, dispose of, and/or benefit from the objects generated from the property in question.

Next 4. Incentives: material and/or moral. Incentive mechanisms and the impact of incentives. 5. Organization of public choice: Dictatorship, democracy. Relating government structure to social economic choice.

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