Scarcity Means There Is Not Enough For Everyone Government must step in to help allocate (distribute) resources 1

Three Economic Questions What Society cannot have everything its people want. How To mass produce or not to mass produce Whom Things produced must be allocated to someone

Command Economy The government: –Owns all the resources –Owns all the businesses –Answers the three questions –Makes all the decisions Examples –North Korea –Cuba –USSR –China 3

Soviet Production Command economic problems –poor-quality goods –Shortages –unhappy citizens? No Incentive = no reason to work harder Gov’t officials determined output quotas based on quantitative measurements. No profit = no motivation Businesses were paid based on meeting these quotas. 4

Soviet Production Desk lamps filled w/lead and too heavy to carry Only tiny night light bulbs made Oil companies only drilled shallow holes. Knew needed deep holes to hit oil. 5

Advantages and Disadvantages 1.Low unemployment- everyone has a job 2.Great Job Security- the government doesn’t go out of business 3.Equal incomes means no extremely poor people 4.Free Health Care What is GOOD about command economies? What is BAD about command economies? 1.No incentive to work harder 2.No incentive to innovate or come up with good ideas 3.No Competition keeps quality of goods poor. 4.Corrupt leaders 5.Few individual freedoms (consumer sovereignty/choice) 6

Why did communism fail? No competition = Higher prices = Low quality = Less variety = A shortage of goods consumers want 7

Social Goals of Economic Systems

The right to choose your own occupation, employer, and use of your money. Business owners have the right to produce what they want and how much they want. Measurement: Corporate profits, GNP, GDP, and Unemployment Economic Freedom

Equity mean fairness –Illegal to discriminate based on age, race, sex, or disbility –False Advertising, unfair pricing, and dangerous products prohibited Measurement: Unemployment, # of discrimination cases, minimum wage Economic Equity

Protection from layoffs and illness Measurement: Welfare total recipients, social security expenditures, and unemployment rate Economic Security

If people cannot work they cannot support their family. Society is hurt. Unemployment reduces efficiency Unemployed people must rely on others for support (family, friends, gov’t, etc.) Measurement: Unemployment rate Full Employment

Inflation is a rise in the general level of prices Inflation reduces every person’s buying power Inflation is especially difficult for people on fixed incomes (those that do not rise as prices rise) Inflation hurts savers Measurement: Consumer Price Index (CPI) Price Stability

Necessary to satisfy the needs and wants of a growing population Do you want your children to live better than you? Do you want to improve the quality of medical care? Transportation? (etc.) –To do this requires economics growth. Measurement: GNP, Corporate profits, Dow Jones Industrial Average Economic Growth