TYPES OF ECONOMIC SYSTEMS

 The question that each economy faces is whether they want prices, quantities, distribution of goods and services, and distribution of income to be determined by the private sector or the public sector.  Private sector – made up of consumers and businesses.  Public sector is the government. There are different levels of government : local, state and federal.  Some services are produced by both private and public agencies such as education, trash collection, and security.  The groups in the economy are consumers, businesses, and government. Types of Systems

An Economic System designed around consumers and businesses. PlayersGoalExamples ConsumersMaximize personal utilitySome people maximize their utility (happiness) by purchasing material goods. Some people maximize their utility by giving away their time and money to charity/ missions. BusinessesMaximize long-run profit Businesses maximize profit to make owners happy! mobil-corporation-announces-estimated-second- quarter-2013-results GovernmentMaximize social welfarehttp:// eral_Unemployment_InsuranceExtensions.htm Government’s goal is to make the masses happy, not just one group of people or businesses.

Types of Economies Command - governments determines prices and quantities produced Capitalistic  free market interaction between buyers and sells determines prices and quantities produced Mixed  a mix where in some markets the government is a buyer, regulator, or producer.  Even with a free market capitalist system there are times when the system does not operate in a manner that best suits the overall population. These occurrences are known as free market breakdowns. Some of these free market breakdowns are on the “Free Market Breakdown” page on the website.

Principles of Capitalism  Capitalism addresses the needs of consumers and businesses.  Capitalism attempts to solve problems without government intervention.  Capitalism inspires free enterprise.  Capitalism promotes private property rights.

Five Questions each economy must address  How a country answers these questions reveals the type of economic system that will prevail.  A capitalistic country looks to the private sector to address these questions.

Question: 1  How much should the economy produce?  It depends on the resources it has available  The resources are land, labor, capital and entrepreneurial spirit. The goal is to use each of the resources efficiently.

US Farmland On the arable land, which is only 11% of Japan's total land area, the population density is among the highest in the world. 145,833 sq mi in Japan – 15,000 square miles of farmable land 9,600,000 square acres Census of Agriculture Contact NASS Customer Service, , 2002 and 2007 Census of Agriculture Approximate total land area (acres) 2,262,462,0202,263,960,5012,260,994,361 Total farmland (acres) 954,752,502938,279,056922,095,840 Percent of total land area 42.2%41.4%40.8% Cropland (acres)445,324,765434,164,946406,424,909 Percent of total farmland 46.6%46.3%44.1% Percent irrigated11.5%11.6%12.7% release/exxon-mobil-corporation- announces-estimated-second-quarter results

2. What should be produced?

3. How are the goods and services produced?  By the most efficient companies.  Top Ten Most Profitable Companies  Sometimes by the government.  In a capitalistic system the best companies survive, the weaker companies go out of business.  1 Royal Dutch Shell oil2 Wal-Mart Stores  3 Exxon Mobil oil4 Sinopec Group oil  5 China National Petroleum oil 6 BP oil  7 State Grid oil 8 Toyota Motor  9 Volkswagen 10 Total oil

4. Who receives the output? Income Distribution by Quintile YEARBOT 20MID 20TOP 20TOP , , , , ,

The Distribution of Income is not equal in the United States.  In the US the top 20 percent of wages earners make 53 percent of the income.  The bottom 20 percent of the wage earners make 3.9 percent of the money.  In a Communist Society, theoretically every one would make the same amount. Their would be no rich or poor. Yet, there would also be no incentive to work hard because everyone makes the same amount.

Percent of Taxes Paid by Quintile

5. Can the system adapt to change? CountryAgricultureIndustryService United States0.9%20.4%78.6% South Korea3.3%40.7%56% Indonesia13.1 %46%41%

Employment by Sector Occupations numberpercentnumberpercent Agriculture %4.32.9% Manufacturing % % Trade and Transportation % % Services % % Total In millions

Styles Change!

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Change does occur in the US without government intervention.  Businesses change to earn profit. Cell phones have gotten smaller, batteries last longer, service has improved. Why? Because companies want to earn profit, and these qualities attract consumers!  Music is now played on a Smart Phone, MP3 or I-Touch.  Why? Because companies want to earn profit and these smaller units attract consumers.

The U.S. Economy is mixed.  Some goods and services are produced by private companies.  Some goods and services are produced by the government.  The trend in the US is for more government. There are pros and cons of more government. The biggest cons are incentive to work and large deficits. The pros are stability and equality among citizens.

How can the type of economic system be determined?  3/government-spending-as-percentage- of.html 3/government-spending-as-percentage- of.html   aspx aspx Government percent of overall spending

Property Rights are important in Capitalism  Tragedy of the Commons  Ownership is necessary, otherwise no one will value the property.  The Family Pond – passed down to the next generation.

Why has the government sector grown so much?  Free Market Breakdowns?