1. ECONOMIC SYSTEMS
Chp 3
TCI

2. Who gets what? How do societies decide?
Scarcity forces tradeoff Principle
Forces societies to choose what to have and what to give up
The larger the society, the more numerous and complex the choices become

3. Three Economic Fundamental Questions Question 1
What goods and services are to be produced?
Recreational trails or logging?
Sneakers or diapers
Car parts of skyscraper beams
Agriculture or tourism

4. Question 2 How are goods and services to be produced? Land, Labor
Capital

5. Question 3 For whom are goods and services to be produced?
Based on ability to pay
Equal distribution to all
First come, first served
Distribution according to need

6. Answer to the Three Economic Fundamental Questions
The economic goals of the society pg 39-41
Read the pages out of the textbook
Rate the six economic goals in order of importance
Be prepared to share your list and tell why you ordered them the way you did

7. Recap - Economic Goals
Economic Freedom – make decision without government interference
Economic Efficiency – society makes the most of its resources with least amount of waste, full employment
Economic Equity – fair and just distribution of wealth

8. Economic Growth – improving standard of living
Economic Security – supports less fortunate with food, shelter and health care to live decently
Economic Stability – goods and services we count on are there

9. Who decides what in different economic systems?
By answering the three fundamental economic questions, every society develops an economic system.
An economic system is the way a society coordinate the production and consumption of goods and services.

10. Three Types of Economies

11. Traditional Economy
Custom and tradition dictate what to produce, how to produce it and for whom
Ancient economies
Maasai of East Africa – semi-nomadic herding people
Livestock, cattle
Wealth measured in cattle and children
Maasai diet=meat, blood and cow’s milk
Men and women have distinct roles
Men protect cattle
Women milk cattle

12. Highest goal of traditional society
Economic stability
Economic security
Traditional economies difficult to maintain
Globalization
Modern world encroaching

13. Ancient Command Economies
Economic decisions are made by a powerful ruler or some kind of authority
Kings, pharaohs, emperors
Primary goal to accumulate wealth and goods for the ruling class

14. Modern Command Economies
Socialism
Property to be owned by the society as a whole for equal benefit of all
Communism
Political and economic system where all proper and wealth are own by all members of society
Government is no longer needed to keep order
Based on ideas of Karl Marx
First successful Communist Revolution – Russia, 1917
Economic planning done by government
Did not turn out as Marx envisioned

15. Modern Command Economies
Economic equity and security – important goals (Russia)
Planning committees couldn’t keep up
Shortages common
Common wages
No one could be fired, slackers
No goods to buy

16. Market Economy (aka Capitalism)
Depends on the decisions of individual producers and consumers
“the market” is the buyers and sellers exchanging goods and services
Free market economy – no government interference
Goals are economic freedom and efficiency
Choices
Can pursue jobs
Adam Smith’s “invisible hand”

17. Circular Flow Model of Market Economy

18. Mixed Economy Government creates balance for free market
Legal system
Currencies
Enforce socially acceptable market rules
Public works (roads, sewage, dams and other)
Government Participation
Taxes
Uses factors of Production to produce and distribute goods and services

19. Circular Flow Model of Mixed Economy

20. US ECONOMIC SYSTEM KEY CHARACTERISTICS
Economic freedom (laissez-faire economy)
Competition
Equal Opportunity
Binding contracts
Property Rights
Intellectual property rights
Patent (20 yrs)
Copyright (70 yrs beyond life of artist)
Profit motive

21. Limited government Protects property rights and contracts
Promotes general welfare
Preserves competition
Protects consumers, workers, environment
Stabilizes economy

22. Market Economy

23. Mixed Economy