Economic Systems

Three Economic Questions 1.What goods will be produced? 2.How will the goods be produced? 3.For whom will the goods be produced?

2 major Economic Systems Free Enterprise- individuals own most, if not all, the resources and control their use Free Enterprise- individuals own most, if not all, the resources and control their use Also called capitalism or market economy Also called capitalism or market economy Socialism- government controls and may own many of the resources. Socialism- government controls and may own many of the resources. Also called command economy Also called command economy

Major Differences Between the 2 Resources Resources Governments role in the Economy Governments role in the Economy Economic Plans Economic Plans Income distribution Income distribution Controlling prices Controlling prices Private property Private property

Economic System from the Past Traditional economies-an economic system in which the answer to the three economic questions are based on customs, skills, and cultural beliefs. Traditional economies-an economic system in which the answer to the three economic questions are based on customs, skills, and cultural beliefs. Example: old feudal system in western Europe. Example: old feudal system in western Europe. All land was owned by king, king granted land to nobles, who in turn granted small plots of land to peasants to farm. The peasants kept part of what they produced; the remainder went to the nobles and, ultimately the king. All land was owned by king, king granted land to nobles, who in turn granted small plots of land to peasants to farm. The peasants kept part of what they produced; the remainder went to the nobles and, ultimately the king.

Labor Theory of Value Created by Karl Marx Created by Karl Marx Def: all value of any item, is determined by the necessary labor time needed to produce that item. Def: all value of any item, is determined by the necessary labor time needed to produce that item. Example: If it takes 5 hours of labor time to produce a chair and 10 hours of to produce a table, then the table is twice as valuable as the chair. Example: If it takes 5 hours of labor time to produce a chair and 10 hours of to produce a table, then the table is twice as valuable as the chair.

Homework Please read the section on mixed economies on page 36. Please read the section on mixed economies on page 36. Please read SMG rules Please read SMG rules Book assignment page 40 #’s 1-6 Book assignment page 40 #’s 1-6 ALL DUE TOMORROW! ALL DUE TOMORROW!

Use your time wisely You have the rest of the day to complete the homework assignments. Please use that time to your advantage. You have the rest of the day to complete the homework assignments. Please use that time to your advantage.