1. Please take out your openers & your 1.3 Study Guides
Economic Systems
Please take out your openers & your 1.3 Study Guides
Monday, January 11th

2. Unit 1, Opener #2
Suppose the owners of a car manufacturing company are thinking about entering the motorcycle production business
How can a Production Possibilities Curve (PPC) help them make a decision on how much they can produce?
What four factors must be true in order for the PPC to be true?

3. Types of Economic Systems
What is an economic system?
Defined: The way society uses its resources to satisfy people’s wants
Usually economic systems are connected to the country’s government
There are three basic systems
Traditional Economies
Command Economies
Market Economies
Usually a society’s economic system features parts of each of these systems
These economies are called mixed economies

4. System #1: Traditional Economies
Traditional economies center on families, clans, or tribes
decisions are based on customs and beliefs
Methods of production are passed from generation to generation
Everyone has a set role; no chance of deviating from pattern
Good of the group always comes before individual desires
The goal is basic survival
Under threat of constant change from the outside

5. System #1: Traditional Economies

6. System #2: Market Economies
Defined:
An economy driven by choices of consumers and producers
General Information
Consumers spend money, go into businesses they want, and purchase services as they wish
Producers decide how to use their resources to make products that will earn them the most money
Consumers, producers benefit each other when they act in self-interest

7. System #3: Command Economies
Defined:
Economic system where the government makes economic decisions
Government determines what to produce, how to produce, and who gets products
The wants of individual consumers are rarely considered
Government owns means of production
What are the means of production?
Land, Labor, Capital, Entrepreneurship

8. Government Controls in Command Economies
Command Economies have a centrally planned economy
Centrally planned economy: The central government makes all decisions
The government decides for whom to produce in part by setting the wages on all workers
This allows only some people have money to buy available products

9. Government Controls in Command Economies
EXAMPLE: Government Planning
In all societies, the government has some control over people’s lives
Can you think of examples in the United States?
In centrally planned economy, government has a great deal control
They determine which businesses to operate, and the amount of product to be made each month
They also determine who is employed, how long they have to work, and how much they will be paid

10. Origins of Command Economies
History
19th Century German Philosopher Karl Marx
Basic Beliefs
Marx lived during Industrial Revolution
Marx believed that society was split between the haves and the have-nots
He believed that factory owners used workers as resource and didn’t pay them what they deserved
He believed that the workers would rebel and establish classless society
The perfect society would exist when all resources in a state are shared equally amongst all individuals
Became the basis of two separate economic ideas, socialism and communism

11. Socialism
Defined:
An economic system in which the government owns some or all of the factors of production
Private industries exist along with government- controlled industries
Example: Cairo, Egypt
Country begins running out of flour
Government controls flour distribution to private bakers
Bakers sell inexpensive bread to the public

12. Communism
Defined:
An economic system in which the government owns all of the factors of production and there is little to no political freedom
Government controls all aspects of production and controls how much each person receives of a given item
Example: Soviet Union
Government focus on industrialization and militarization rather than social welfare
Millions do not receive enough food and starve

13. Problems of Command Economies
In theory, command systems fair to everyone; In practice, many disadvantages
Specific disadvantages include:
The central planners do not understand local conditions
The workers have little motivation to be productive or conserve resources
The artificially low prices lead to shortages
As a result, the people suffer due to these shortages of key goods

15. Command Economies Today
No pure command economies today
Modern technology has brought about change
Some economies still have mostly command elements
North Korea
Communist North Korea used resources for military, not necessities
built large army; nuclear weapons program
In 1990s and early 2000s, millions died of hunger, malnutrition
In 1990s, production decreased and economy shrank
Since 2003, some market activity allowed