1. Introduction to Economic Systems

2. Economic Systems
The way in which nations use their resources to satisfy their people’s needs and wants.
Can be differentiated by how they answer the three basic economic questions.

3. What should be produced in the economy?
What quantities of food, mobile phones or banking services should be produced by the economy?
How many trees need to be cut down to meet the demand for pulp for newspapers and magazines?
Should we spend extra money on national defense or should more resources be devoted to health care and education?

4. How should production be organized?
Should a firm use labor or machinery to produce their goods?
How many workers should be employed?
Should production take place in Atlanta or Franklin or in the United States or Malaysia?

5. For whom should production take place?
Should everybody be entitled to an identical share of production, or should some receive more than others?
We know that the distribution of income and wealth in the US and every other economy is not equal.
There are inequalities in people's living standards. How do we determine who gets what?

6. Types of Economic Systems

7. Economic Systems (Review)
The way in which nations use their resources to satisfy their people’s needs and wants.
Can be differentiated by how they answer the three basic economic questions.

8. The Three Questions (Review)
What should be produced in the economy?
How should production be organized?
For whom should production take place?

9. Types of Economic Systems
Traditional
Command
Market
Mixed

10. Traditional Economy
Economy that uses tradition (customs, beliefs, religion) to answer the three basic economic questions
Very few nations still use this system:
Middle East
Africa
Latin America

11. Command Economy
Economy where the government makes all decisions related to the three basic economic questions
Individuals have little or no voice in economic decisions
The government controls the factors of production

12. Market (Capitalist) Economy
Consumers answer the three basic economic questions
Individuals own the factors of production

13. Mixed Economic System
A cross between a command economy and a market economy
Some government control
Mostly consumer driven

14. Market Systems and Government

15. The Role of Government
Provide Public Goods/Services
Redistribute Income
Protect Property Rights
Resolve Market Failure
Regulator

16. 1. Provide Public Goods and Service
Roads
Schools
Nuclear Weapon
Services
Public Safety
Medicare
Social Security

17. 2. Redistribute Income
Through taxing and spending policies the government can move money from one individual to another.
Welfare, Medicaid, and Medicare are the most obvious examples.

18. 3. Protect Property Rights
Enforces contracts and private ownership of the factors of production.
Enforces the laws to make sure the economy is efficient and fair.

19. 4. Resolve Market Failure
Protect against big business and monopoly advantage.
Ensure fair competition and consumer choice.

20. 5. Regulator
The government regulates business to protect citizens from harm/fraud.
Examples:
Banking – prevents bank failure
Auto Industry – for safety

21. 5. Regulator (cont.)
Regulation and Deregulation* have different effects on producers and consumers
Regulation increases the cost of producing goods/services, but provides consumers with protection.
Deregulation cuts costs for the producer, but eliminates the benefit to the consumer.
*Deregulation is the removal of regulation from an industry.

22. 5. Regulator (cont.) Examples : Food and Drug Administration
Federal Aviation Administration
Bank Regulations

23. Specialization and Voluntary Exchange

24. Specialization
- when individuals, businesses, or nations focus resources toward producing only certain products.
Division of Labor – takes place when a worker concentrates only on a single task.

25. Types of Specialization
Individual
Electrician, Welder, Heart Surgeon
Business
Coke, George Grading & Hauling, Nutt Roofing
Nations
France (Wine), Japan (Electronics), Saudi Arabia (Oil)

26. Voluntary Exchange
The act of buyers and sellers freely and willingly engaging in market transactions.

27. Voluntary Exchange (cont.)
Both producer and consumer benefit:
Consumers must believe that the purchase is worth more than the value of the money given up.
Producers must believe that the money received is worth more than the value of the product being sold.

28. Questions
How could the creation of monopolies hurt voluntary exchange?
Why does the government fight against advertising fraud and the use of counterfeit money?

29. S.O.S. S.O.S. S.O.S. Mission to Mars… Supplies are low. S.O.S.
Mission success is slipping away.
S.O.S.
S.O.S.
…is anyone out there?
Only you can save the colonists.