Economic Systems

Define  1. Traditional Economy  2. Command Economy  3. Free Market Economy  4. Mixed Economy Example

Economic Systems Learning Target: List the 3 economic questions. Compare and contrast the 3 economic systems.

3 economic questions  What should we make?  How should we make it?  For whom should we make goods and services?

Command Economies  Answers the 3 economic questions with:  What – military goods and FEW consumer goods  How – GOVERNMENT owns and makes everything  For whom – ALL people  Communism, Fascism, and most ancient societies are like this  Often dictators and disliked governments  Today: North Korea, Cuba, China (kinda)

Command Economies  Problems:  Inefficient & wasteful  Slow to change and adapt  No incentives for workers  No freedom to purchase desired goods  Low standard of living (often poor)  Benefits:  Security – basics of food and housing provided  Equity – everyone receives very little equally – no super rich  Close communities and nations – work together more

Market Economies  Answers the 3 economic questions with:  What – consumer goods  How – People and businesses own and make everything  For whom – people who can pay  Free enterprise economies = market economies  Businesses (enterprises) are FREE to sell what they want to sell  True market economy = FEW government rules on what can / cannot be made

Free Market Economies  Problems:  No security b/c no job = no home or food  No government help to those who need it (elderly and disabled, for example)  No rules on businesses, so they become powerful, raise prices, & produce only profitable items  Benefits:  Low taxes  No waste & very efficient  Complete economic freedom

Mixed Economies  Answers the 3 economic questions with:  What – military goods AND consumer goods  How – government, people, AND businesses  For whom – all people  Mixed = command + market economies  Best of both worlds or problems of both worlds?  Government provides for those who need help; MOST people buy what they need on their own

Mixed Economies  Problems:  Higher taxes than market economy  Waste & cheating the system  Rich feel punished by taxes  Businesses are limited by the government  Benefits:  Government helps the needy  More economic security  Government protection of consumers

Exit ticket:  On the back of your chart about the activity today, answer these 3 questions: 1. Why do you think command economies failed? (most have changed to a mixed economy now) 2. What do you think about taxes – is taxing set up right in our country? Who should pay more or less if you think it should be changed? 3. What do you think about government help to the needy – is the system set up correctly, or should there be more help or less help? Why?

6 Social Goals of each economic system  Learning Target:  Define each of the six social goals.  Compare and contrast social goals of market and command economies.

6 social goals 1. Economic Efficiency: producing cheaply & without waste 2. Economic equity: 2 kinds a. Everyone earns according to his/her work Ex: lawyer earns more than security guard b/c lawyer has longer hours and harder brain job b. Everyone earns equally according to ability Ex: lawyer and security guard paid same b/c working according to their abilities

Continued social goals 3. Economic freedom: choice of where to work and what to buy 4. Economic growth: producing more goods and services each year & adding new jobs

Continued social goals 5. Economic security: no fear of change (job loss, health problem, or old age) 6. Economic stability: prices staying about the same or changing slowly

Matching social goals and types of economies  In a command economy:  Equity in everyone getting paid the same  Security in jobs  Stability in prices  NOT important in command:  Efficiency  Freedom  Growth  In a market economy:  Efficiency in production  Equity in everyone getting paid what they earn  Freedom in choices  Growth in economy  NOT important in market:  Security  Stability