1. Economic Systems Economic Systems Compare different types of economic systems: traditional, free enterprise, command and mixed. Compare different types of economic systems: traditional, free enterprise, command and mixed.

2. What is Economics? Economics studies how individuals and societies seek to satisfy needs and wants with scarce resources. Economics studies how individuals and societies seek to satisfy needs and wants with scarce resources. Oil & fuel Land Doctors Technology

3. How Does An Economy Work? Nations must answer 3 basic Economic question: Nations must answer 3 basic Economic question: What goods and services should be produced? What goods and services should be produced? How should the goods and services be produced? How should the goods and services be produced? For who should the goods and services be produced? For who should the goods and services be produced? The way a nation answers these questions defines their economy. The way a nation answers these questions defines their economy.

4. Factors of Production Economic Resources Economic Resources Natural Resources – raw materials found in nature that are used to produce goods Natural Resources – raw materials found in nature that are used to produce goods Human Resources – people’s knowledge, efforts, and skills used in their work Human Resources – people’s knowledge, efforts, and skills used in their work Capital Resources – used to produce goods and services (buildings, materials, and equipment) Capital Resources – used to produce goods and services (buildings, materials, and equipment) Entrepreneurial Resources - recognize the need for new goods or service Entrepreneurial Resources - recognize the need for new goods or service Scarcity – shortage of resources Scarcity – shortage of resources

5. 5 Economic System An economic system is the set of mechanisms and institutions that resolves the what, how, and for whom questions. An economic system is the set of mechanisms and institutions that resolves the what, how, and for whom questions. Some standards used to distinguish among economic systems are: Some standards used to distinguish among economic systems are: Who owns the resources? Who owns the resources? What decision-making process is used to allocate resources and products? What decision-making process is used to allocate resources and products?

6. Why Economic Systems? Nations use economic systems to determine how to use their limited resources effectively. Nations use economic systems to determine how to use their limited resources effectively. Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life. Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life. Different types of Economic Systems Different types of Economic Systems Traditional Economy Traditional Economy Market Economy (free enterprise) Market Economy (free enterprise) Command Economy Command Economy Mixed Economy Mixed Economy

7. Traditional Economy People find food for themselves and trade for needed goods. People find food for themselves and trade for needed goods. No companies or governments involved No companies or governments involved This system is found among herders or small farmers This system is found among herders or small farmers

8. Traditional Economy Found in rural, under- developed countries– Found in rural, under- developed countries– Eskimos & Indian tribes Eskimos & Indian tribes Customs govern the economic decisions that are made Customs govern the economic decisions that are made Farming, hunting and gathering are done the same way as the generation before Farming, hunting and gathering are done the same way as the generation before Economic activities are centered around the family or ethnic unit Men and women are given different economic roles and tasks Advantages: people have specific roles; security in the way things are done Disadvantages: Technology is not used; difficult to improve

9. Free Enterprise Sometimes called “capitalism” or “market economy.” Ex. U.S.A. Sometimes called “capitalism” or “market economy.” Ex. U.S.A. People own companies and decide what to produce to make consumers happy. People own companies and decide what to produce to make consumers happy. Business owners can earn big profits or can lose their money if a business fails. Business owners can earn big profits or can lose their money if a business fails. Some businesses sell stock to get more capital to invest. Some businesses sell stock to get more capital to invest. New York Stock Exchange

10. Market Economy (Capitalism) Also called a Free Market Economy or Free Enterprise Economy Also called a Free Market Economy or Free Enterprise Economy Businesses and consumers decide what they will produce and purchase and in what quantities Businesses and consumers decide what they will produce and purchase and in what quantities Decisions are made according to law of supply & demand Decisions are made according to law of supply & demand Supply and demand of goods and services determine what is produced and the price that will be charged. Advantage—competition to have the best products and services Disadvantage—huge rift between wealthy and poor Note: a true market economy does not exist.

11. 11 Invisible Hand of Markets According to economist Adam Smith (1723–1790), market forces (supply and demand) coordinate production and price as if by an “invisible hand.” According to economist Adam Smith (1723–1790), market forces (supply and demand) coordinate production and price as if by an “invisible hand.”

12. Command Economy The government makes economic decisions about what should be produced, how much it should cost, etc. Two types of command economies are socialism and communism. https://www.youtube.c om/watch?v=B43YEW2 FvDs&list=PLobfwayn9li heoLLa5jrbziwzgqVZN8J G&nohtml5=False https://www.youtube.c om/watch?v=B43YEW2 FvDs&list=PLobfwayn9li heoLLa5jrbziwzgqVZN8J G&nohtml5=False Workers arrive at a factory in the old Soviet Union in 1929.

13. Command Economies In socialism, the government runs some industries, such as oil, and uses profits to pay for health care, education. Ex. Norway In communism, the government runs all industries, owns all property, sets wages, and prices, and people must do as they are told. Ex. North Korea, Cuba North Korean clothing factory

14. Command Economy The government (or central authority) determines what, how, and for whom goods and services are produced. The government (or central authority) determines what, how, and for whom goods and services are produced. Two types: Two types: Strong Command – where government makes all decisions (communism – North Korea, Cuba) Strong Command – where government makes all decisions (communism – North Korea, Cuba) Moderate Command – where some form of private enterprise exists but the state owns major resources (France and Sweden, China) Moderate Command – where some form of private enterprise exists but the state owns major resources (France and Sweden, China) Advantages Guarantees equal standard of living for everyone Less crime and poverty Needs are provided for through the gov’t Disadvantages Minimal choices Fewer choices of items No incentive to produce better product or engage in entrepreneurship Also known as a Planned or Managed Economy

15. A Pure Command Economy The Government controls the factors of production and makes all the decisions The government is responsible for answering the The Government controls the factors of production and makes all the decisions The government is responsible for answering the three economic questions three economic questions What? One person ( a dictator) or a group of government officials (central planning committee) decide what is to be produced What? One person ( a dictator) or a group of government officials (central planning committee) decide what is to be produced How? The government owns all the factors of production and makes all the decisions about production How? The government owns all the factors of production and makes all the decisions about production Who? The government decide who receives what is produced in the economy Who? The government decide who receives what is produced in the economy

16. 16 Pure Centrally Planned Economy All resources government-owned All resources government-owned Production coordinated by the central plans of government Production coordinated by the central plans of government Sometimes called communism Sometimes called communism Use visible central planners Use visible central planners

17. 17 Problems with Centrally Planned Economies Consumers get low priority Consumers get low priority Little freedom of choice Little freedom of choice Central planning can be inefficient Central planning can be inefficient Resources owned by the state are sometimes wasted Resources owned by the state are sometimes wasted

18. Mixed Economy Combination of a market and a command economy Combination of a market and a command economy Government takes care of people’s needs Government takes care of people’s needs Marketplace takes care of people’s wants. Marketplace takes care of people’s wants. Most nations have a mixed economy: United States, England, Australia Advantage—balance of needs and wants met by government and in marketplace Disadvantage— citizens have to pay taxes

19. 19 Mixed Economy United States is a mixed economy United States is a mixed economy Also considered a market economy Also considered a market economy Government involved with economy in a variety of ways. Government involved with economy in a variety of ways.

20. Mixed Economies Some government involvement through mandatory laws and regulations that businesses follow Some government involvement through mandatory laws and regulations that businesses follow Labor Laws, Minimum Wage, minimum prices Labor Laws, Minimum Wage, minimum prices The government provides social programs for those who need help The government provides social programs for those who need help Welfare, Medicare, Unemployment, Disability, etc. Welfare, Medicare, Unemployment, Disability, etc. All economies are mixed they are classified based on how much the government is involved in the process All economies are mixed they are classified based on how much the government is involved in the process

21. Types of Economic Systems All economic systems fall into one of two broad categories: All economic systems fall into one of two broad categories: Market (or Capitalist) System Market (or Capitalist) System Command (or Planned) System Command (or Planned) System No economy can be purely market or purely command No economy can be purely market or purely command Elements of both economies are found in all systems this makes all economies mixed Elements of both economies are found in all systems this makes all economies mixed

22. Continuum of Economic Systems Command Economy Communism On the far left Market Economy Capitalism On the far right Socialism Left of center but right of communism

23. Socialism Increased government involvement in people’s lives and the economy Increased government involvement in people’s lives and the economy The main goal is to keep prices low for all people and to provide employment for many The main goal is to keep prices low for all people and to provide employment for many The government runs key industries and makes economic decisions The government runs key industries and makes economic decisions More social services for all and free or low cost medical care More social services for all and free or low cost medical care Canada, Germany, Sweden, Australia and Great Britain are all examples of socialist economies Canada, Germany, Sweden, Australia and Great Britain are all examples of socialist economies

24. Communism The government runs everything (Totalitarian government) The government runs everything (Totalitarian government) Only one political party, the Communist party, runs the government Only one political party, the Communist party, runs the government All people able to work are assigned jobs – there is virtually no unemployment All people able to work are assigned jobs – there is virtually no unemployment The government assigns housing, schools, and occupations The government assigns housing, schools, and occupations There is little to no economic freedom There is little to no economic freedom Cuba, North Korea, and China are examples Cuba, North Korea, and China are examples

25. Communism vs. Capitalism Capitalists say that people have no reason to do a good job in communism because everyone gets the same pay. Products are boring and poorly made. Communists say that capitalism is unfair to the poor because people at the top of the company get rich while workers get low wages. They also say capitalists wipe out little companies and destroy the environment to get money.

26. Communism vs. Capitalism The Cold War from 1945- 1991 between U.S. and Soviet Union was based on getting nations to line up on the communist side or capitalist side. The Cold War from 1945- 1991 between U.S. and Soviet Union was based on getting nations to line up on the communist side or capitalist side. Today Russia allows some capitalism. Today Russia allows some capitalism. Communist China also allows some capitalism. Communist China also allows some capitalism. Factory workers in China