1. Economic Systems and Decision Making

2. Traditional Economy Economy stems from ritual habit Advantages:
Generally, people know their roles.
What, How, and For Whom.
Disadvantages:
Discourages new ideas
low standard of living
If your father was a medicine man than you will probably be a medicine man
not much beyond basic survival in terms of social goals
If there is trade, it is generally barter
The basic questions are easily answered, What-the basics for survival, How-traditional roles, For Whom-your village
Disadvantages—
discourages new ideas,
social pressure keeps innovation down,
little risk = little reward,
risky behavior can be disastrous for the entire group,
traditional economies tend to have a low standard of living.

3. Command Economy
Central authority makes most of the economic decisions. What, How, and For Whom.
Advantages:
Can make drastic changes very quickly
many have health care
Attempts to provide equity for all

4. Command Economy (cont.)
Disadvantages:
Lack of basic consumer needs
little incentive to innovate
little incentive to work hard
large bureaucracy limits flexibility
Examples:
Cuba
USSR
North Korea
China (moving toward a market economy)
Many shortages, long food lines, rotting food, buy wheat from U.S.
No real system for rewarding hard work and innovation, everyone's pay is relatively equal
Bureaucracy—development of aircraft in USSR took about 15 years compared to 5-8 years in the U.S.
Military spending as a % of GDP USSR=13% U.S.=3%

5. Market Economy People and firms act in their own best interest.
Buyers and sellers come together.
Buying = Voting.
Advantages:
Adjusts well to change
Individual freedom
Less bureaucracy
It is a way for people to have a voice in society
Consumer variety
1. Gorbechev story about grocery market
2.Glen story about paint

6. Market Economy (cont.) Disadvantages: Examples:
Does not guarantee basic services to all citizens
no guarantee of work
Lack of regulation can lead to exploitation
Examples:
United States, UK, Germany, Japan, and South Korea

8. Ch. 2 section 2 Social and Economic Goals
Economic Freedom
Economic Efficiency
Economic Equity
Discrimination, false advertising
Economic Security
Protection from layoffs, Social Security
Full Employment
Price Stability
Economic Growth

9. Ch. 2 section 3 How do we achieve our social and economic goals?
Capitalism and Free Enterprise
Voluntary Exchange
Private Property
Profit Motive
Competition
What is the role of the Government?
Ensure and encourage all of the above.