Economic Systems What type of economic system is it? What type of economic system is it? Consider: who owns or controls the factors of production? Consider: who owns or controls the factors of production?

Traditional Economy Know what your role is in society Know what your role is in society The allocations of scarce resources is determined by tradition or religion The allocations of scarce resources is determined by tradition or religion Examples: Amish, Iran, Africa Examples: Amish, Iran, Africa Khanty in Siberia Amish in Ohio (Undeveloped parts)

Command Economy A central authority makes most decisions A central authority makes most decisions  What to produce  How to produce  For whom Examples: former Soviet Union, North Korea, CubaExamples: former Soviet Union, North Korea, Cuba

Market Economy Capitalism Capitalism Free enterprise Free enterprise People act in their own best interest People act in their own best interest Buyers & sellers come together in the market Buyers & sellers come together in the market Consumers make decisions Consumers make decisions Examples: U.S.A., Germany, Examples: U.S.A., Germany, Japan >Japan >

COMMUNISM COMMUNISM SOCIALISM CAPITALISM < > Directed by Command Directed by the Free Market

Ownership of Resources COMMUNISMSOCIALISM CAPITALISM COMMUNISM SOCIALISM CAPITALISM All productive resources are government owned Basic productive resources are government owned and operated; the rest are privately owned and operated Productive resources are privately owned and operated

Allocation of Resources COMMUNISMSOCIALISM CAPITALISM COMMUNISM SOCIALISM CAPITALISM Centralized planning directs all resources Government plans ways to allocate resources in key industries Capital for production is obtained Through the lure of profits in the market

Role of Government COMMUNISMSOCIALISM CAPITALISM COMMUNISM SOCIALISM CAPITALISM Government makes all economic decisions Government directs the completion of it’s economic plan in Key industries Government may promote competition and provide public goods

COMMUNISM COMMUNISM SOCIALISM CAPITALISM < > Directed by Command Directed by the Free Market Where would each of the following countries fall on the continuum? -Brazil-Russia-North Korea -Germany-United States-Chad

Origins / Principles Origins / Principles Command: Socialism / Communism Command: Socialism / Communism Karl Marx pg.500 Communist ManifestoKarl Marx pg.500 Communist Manifesto “Workers are exploited by the rich… there is a class struggle.” “Workers are exploited by the rich… there is a class struggle.” Market: Capitalism / Free Enterprise - Adam Smith pg.18 The Wealth of Nations “Laissez Faire” – No government intervention in economic affairs. “invisible hand”

Origins / Principles John Keynes : the government should use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms ( Macroeconomics) John Keynes : the government should use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms ( Macroeconomics) recessionsdepressions booms recessionsdepressions booms Malthus: (Principles of Population) > Controls: Malthus: (Principles of Population) > Controls: 1.War 2.Famine 3.Disease 4.Social/ Personal

A QUICK REVIEW TYPES OF ECONOMIC SYSTEMS MARKETMARKET COMMANDCOMMAND TRADITIONALTRADITIONAL SPECTRUM OF ECONOMIC SYSTEMS CAPITALISM SOCIALISM COMMUNISM

Capitalism Private ownership of all property Private ownership of all property Profit motive Profit motive Socialism Private ownership of property Government directs economy Government controls health care, transportation, education Communism Ideal: people share all resources, no private ownership Practice: government (party) dictates