Dr. T. D. Mitchell Bonneville High School Idaho Falls, Idaho Economic Systems Economics: concepts and choices, 2011. Holt McDougal Dr. T. D. Mitchell Bonneville High School Idaho Falls, Idaho

Introduction to Economic Systems Objectives Identify the three main types of economic systems. Understand how a traditional economy operates, including its advantages and disadvantages. Analyze how modern forces are changing traditional economies. Economics: concepts and choices, 2011. Holt McDougal

Traditional Economy A system in which families, clans, or tribes make economic decisions based on customs and beliefs. Economics: concepts and choices, 2011. Holt McDougal

Command Economy In a command economy, the government decides what goods and services will be produced, how they will be produced, and how they will be distributed. Economics: concepts and choices, 2011. Holt McDougal

Market Economy A market economy is based on individual choice, not government directives. Consumers and producers drive the system. Economics: concepts and choices, 2011. Holt McDougal

Characteristics of a Traditional Economy Trait1: Advantages and Disadvantages A traditional society produces what best ensures its survival. The methods of production are the same they have always been. Little disagreement over economic goals and roles. Resists change; less productive. No choice in jobs members may be better suited to do. Economics: concepts and choices, 2011. Holt McDougal

Characteristics of a Traditional Economy Trait 2: Under Pressure to Change Around the world, traditional economies are under pressure to change. Media has bombarded traditional societies with images of what the world outside there group. Economics: concepts and choices, 2011. Holt McDougal

Comparing Economic Systems Communism Socialism Market System Who owns resources? Government Government owns basic resources All resources privately owned How are resources allocated? Government planners decide how resources are used Government planners allocate basic resources Market forces allocate resources What role does government play? Government makes all economic decisions Government makes decisions in the basic industries Government’s role limited Economics: concepts and choices, 2011. Holt McDougal

Command Economy Centrally planned Impact of Command Economies Government planning Socialism and Communism Authoritarian Impact of Command Economies Economics: concepts and choices, 2011. Holt McDougal

Signs of Economic Reform in North Korea Economics: concepts and choices, 2011. Holt McDougal

A New View of Economics Became involved in radical politics in college. Traveled to different countries, landing in London. Became aware of factory worker struggles. Whole industrial system was based on exploitation of workers. Believed conflict between management and labor was inevitable. Communism eventually collapsed in the 1990s. And fell into disfavor. Economics: concepts and choices, 2011. Holt McDougal

Market Economy Self-interest Private property rights Market Economics: concepts and choices, 2011. Holt McDougal

Fundamentals of a Market Economy Private Property Buyers and sellers are free to own private property. Limited Government Buyers and sellers must be free to operate with minimal government intervention Voluntary Exchange When buyer and seller agree to do business together, each believes that the benefits outweigh the costs. Competition Consumer Sovereignty Sellers are free to attempt to get the business of others by offering the best deal. Specialization Buyers and sellers are able to concentrate their efforts in areas where they have an advantage. Economics: concepts and choices, 2011. Holt McDougal

The Circular Flow Model Product Market Households Factor Market Businesses Government Business Revenue Consumer Spending Sell Goods and Services Buy Goods and Services Taxes, Regulations, Laws Payments for Resources Safety Net, Public Goods Income from resources Buy Productive Resources Sell land, labor, capital, entrepreneurship Economics: concepts and choices, 2011. Holt McDougal

Circular Flow of Market Economies Product markets Factor markets Circular flow Economics: concepts and choices, 2011. Holt McDougal

Impact of Market Economies Advantages Economic and political freedom Consumer choice Freedom to develop interests and talents Little government control profits Disadvantages No mechanism for providing public goods and services No safety net Problems without government regulation Industrial consequences Economics: concepts and choices, 2011. Holt McDougal

Modern Economies Life in a mixed economy Types of mixed economies U. S. – driven by private ownership and markets Europe – government more heavily involved Sweden – government owns about one-third of all Swedish companies Economics: concepts and choices, 2011. Holt McDougal

Trends in Modern Economics Trend 1: Changes in ownership Nationalize Privatize Trend 2: Increasing global ties Global economy Cross-border business partnerships Economics: concepts and choices, 2011. Holt McDougal

E-Commerce Competition Economics: concepts and choices, 2011. Holt McDougal

Final Thought Ask five economists and you'll get five different answers - six if one went to Harvard. Edgar Fiedler Economics: concepts and choices, 2011. Holt McDougal