1. Lesson 1 Presentation
Economic Systems

2. Main Idea
Compare and contrast the three main types of economic systems, focusing on the basis elements of production and distribution of goods and services.
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3. I will be able to:
Compare and contrast the characteristics of traditional, command, and market economies.
List the advantages and disadvantages of traditional, command, and market economies.
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4. Characteristics of Free Enterprise
A free enterprise economy has both capitalism and free markets.
Characteristics of a capitalistic free enterprise economy include economic freedom, voluntary exchange, private property rights, the profit motive, and competition.
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5. Characteristics of Free Enterprise
Economic freedom allows you to choose your occupation, employer, and job location.
Capitalism allows voluntary exchange between buyers and sellers.
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6. Characteristics of Free Enterprise
Private property rights allow people to own and control possessions, which gives them the incentive to work, save, and invest.
Individual freedom is closely related to economic freedom.
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7. Benefits of Free Enterprise
Individual freedom is closely related to economic freedom.
Market economies produce a huge variety of goods.
Market economies adjust daily, mainly through the ever-changing prices of goods and services.
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8. Benefits of Free Enterprise
Intense competition in a free market capitalist economy promotes economic progress in the form of a continuing supply of newer and better products.
When more and better products are produced in a free market capitalistic system, wealth is created.
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9. Disadvantages of Free Enterprise
Periods of uneven economic growth are one of the disadvantages of free enterprise capitalism.
In free enterprise capitalism, the gaps between rich and poor citizens seem to increase.
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10. Disadvantages of Free Enterprise
In free enterprise economies, suppliers tend to combine to avoid competition, which results in fewer participants on the supply side of the market.
Businesses such as corporations have most of the same rights as individuals, but they also have many responsibilities as a result of government-imposed regulations.
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11. TE Characteristics
The use of scarce resources – and nearly all other economic activity – stems from ritual, habit, or custom
Habit and custom also dictate social behavior
Individuals are generally not free to make decisions on the basis of what they want or would like to have.
Their roles are defined by the customs of their elders and ancestors.
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12. TE Examples (Inuit)
This rewards the skill of the hunter and also ensures that everyone in the TE benefits.
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13. TE Examples (Inuit)
An Inuit hunter gets the choice of the first cuts from a successful hunt & then others in the community get to share in the kill as well.
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14. TE Advantages
The answer of the FOR WHOM question is determined by the customs and traditions of the society
Tradition dictates how people live their lives.
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15. TE Disadvantages
It tends to discourage new ideas and new ways of doing things
The strict roles in a TE have the effect of punishing people who act differently or break rules
The lack of progress due to new ideas & new ways of doing things leads to economic stagnation and a lower level standard of living than in other economic systems.
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16. TE Advantages Everyone knows which role to play.
Little uncertainty exists over WHAT to produce
Little uncertainty exists over HOW to produce
If born into a family of hunter – you hunt
If born into a family of farmers – you farm
you did the same as your parents
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17. Economies Based On Tradition
In a traditional economy, resource use and social behavior are dictated by ritual, habit, or custom.
Examples of traditional economies include the central African Mbuti, the Australian Aborigines, and the Inuit of Northern Canada.
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18. Economies Based On Tradition
The main advantage of a traditional economy is that the answers to WHAT, HOW, and FOR WHOM to produce are determined by customs and tradition.
The main disadvantage of a traditional economy is that it tends to discourage new ideas and new ways of doing things.
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19. Economies Based On Command (CE)
A central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce.
Can be headed by a king, dictator, president, tribal leader or anyone who make the major economic (E) decisions
A more modern /liberal version of a CE is socialism
An economic & political system in which govt. owns some of the FOP
The govt. plays a major role in answering most of the major WHAT, HOW, & FOR WHOM questions
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20. Characteristics(CE)
The governing authority makes all the major economic question
If houses or apartments are to be built
The best way to build them
Who will receive/live in them
Sometimes the central authority is generous w/the country’s wealth and spreads it around for the benefit of all
Mostly much of the country’s wealth is plundered and kept for the exclusive benefit of its leaders
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21. Characteristics(CE) Most CE severely limit private property rights
People not allowed to own their own houses, businesses, & other productive resources
The govt. owns most of the resources in the economy
Socialist economies (SE) share many of the same characteristics of a pure CE
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22. Characteristics(CE)
Only fewer resources are owned or controlled by the central authority
Under socialism – the stated objective of the govt. is to serve the needs of its people
Not just enhance the welfare of its leaders.
Most SE tend to be larger than economies (E) directed by the pure tradition which makes it harder for the govt. to own & direct everything.
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23. Examples (CE)
Are limited to a handful of dictatorships & small tribal economies around the world.
North Korea – the last leading example
Everything is either owned or controlled by the govt.
More important are the small and shrinking number of countries based on socialism
Cuba, Vietnam, Venezuela
Soviet Union collapsed in 1991
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24. Examples (CE)
Denmark, Sweden, & Norway – no longer described as socialist
Have completed a transition to capitalism
They still have a few socialist features – free universal education & health services
More important are the small and shrinking number of countries based on socialism
Cuba, Vietnam, Venezuela
Soviet Union collapsed in 1991
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25. Advantages (CE) It can change directions drastically
Former Soviet Union went from a rural agricultural society in 1910 to an industrialized nation in a few decades emphasizing the growth of heavy industry
Shifting resources on a massive scale from farming & consumer goods to industrial production.
It allows more citizens to receive some G&S that they would otherwise not be able to afford
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26. Advantages (CE) Cubans have access to universal health care
Venezuela - President Chavez tried to provide basic food, commodities, and electricity below markets rates.
North Korea & former Soviet Union - public services were available to everyone at little or no cost
Health
Education
Transportation
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27. Disadvantages (CE)
1. The leaders of CE usually provide for the expense of the general population
High govt. officials have the nice cars, houses, & plenty of food while the average citizen may be forced to go w/o.
2. The loss of the individual freedom to choose
The doctors in Cuba are required to live in the same buildings where they provide services
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28. Disadvantages (CE)
Free state-controlled media – programing is usually limited to the propaganda control the govt. wants people to see/hear
Not open to what people want to see or hear
3. The production of low quality goods
Workers given quotas to stimulate production
Workers focus on quotas & not quality
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29. Disadvantages (CE) 4. Requires a large decision-making bureaucracy
Slows production & raised the cost of production
5. Rewards for individual initiatives are rare in both command and socialist economies
All wages are uniform regardless of occupation
Doctors and factory workers get paid about the same
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30. Disadvantages (CE) Almost all countries are connected by foreign trade
So it is possible for a problem in one part of the world to be quickly transmitted to another
CE tend to stay relatively small because they have such a hard time making all the decisions necessary for growth and change to take place.
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31. Disadvantages (CE)
Factory workers paid the same regardless of production
E w/relatively uniform wages for different occupations & effort don’t provide much incentive for people to learn or work.
6. A planning bureaucracy lacks the flexibility to deal with major problems, or even the day-to-day ones.
CE tend to lurch from one crisis to the next or collapse as did the former Soviet Union
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32. Disadvantages (CE)
G&S are never free, even if the country has an E directed by socialism
TINSTAAFL still applies to SE
Denmark, Sweden, & Norway→
Free education & national health care funded at high domestic tax rates
This tax rate is higher than in the US.
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33. Economies Based On Command
In a command economy, a central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce.
Socialism is a modern, somewhat more liberal version of a command economy.
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34. Economies Based on Command
The main advantages of a command economy are that it can change direction quickly, and it allows many citizens to receive goods and services they otherwise could not afford.
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35. Economies Based on Command
Disadvantages include the loss of individual freedom to choose, the production of low-quality goods, a large decision-making bureaucracy, and lack of individual initiative.
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36. Economies Based on Market (ME)
People make decisions in their own best interest
Allows buyers & sellers to come together for the purpose of trade
Market – is an arrangement that allows buyers & sellers to come together to exchange G&S
A physical location, website
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37. Characteristics (ME) A great deal of freedom
People can spend their money on the products they want most
This tells producers which products people want most – WHAT to produce
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38. Characteristics (ME)
Businesses are free to find the production methods – HOW to produce
Income that consumers earn & spend in the market determines – FOR WHOM to produce
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39. Characteristics (ME)
The private ownership of resources.
ME is often described as being based on capitalism – an economic system where private citizens own & use the FOP for their own profit or gains
Income that consumers earn & spend in the market determines – FOR WHOM to produce
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40. Characteristics (ME)
Capitalism – draws attention to the private ownership of resources
ME – focuses on where G&S are exchanged
The two terms focus on different features of the same ES
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41. Examples (ME)
Many of the most prosperous E in the world are based markets and capitalism
Australia
Canada
Great Britain
Japan
Singapore
South Korea
parts of Western Europe
United States
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42. Examples (ME)
While difference occur – they share the common elements of market and the private ownership of productive resources to seek profits
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43. Advantages (ME) 1. High degree of individual freedom
People are free to:
spend their money on G&S they choose
decide where & when they want to work
invest further in their education & training.
Producers are free to decide:
What they want to produce
Who they want to hire
Which input they want to use
The way they want to produce
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44. Making Connections Market Advantages:
What economic decisions have you made this past week?
What to buy for lunch
Which clothing item to buy
Whether to buy a music single by one artist rather than another.
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45. Advantages (ME) 2. It adjusts gradually to change over time
The decisions that individuals make for them selves – not decisions made by govt. – helps the E adjust to change
3. Relatively small degree of govt. interference, the govt. tries to stay out of the way of buyers & sellers
Except in justice and national defense
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46. Advantages (ME) 4. Decision making is decentralized
Individual economic decisions are made daily
The decisions direct scarce resources into the use they favor most
Everyone has a voice in the way the economy runs
5. ME is the variety of G&S that are produced
If the product can be imagined, it is likely to be produced in hopes that people will buy it.
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47. Advantages (ME) 6. The high degree of consumer satisfaction
The choice of one group does not affect the choices of other groups
7. The goods are usually privately owned
Privately owned goods last longer than goods owned by others
The owner will take better care of his/her property
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48. Advantages (ME) Makes sense to have an ES that takes care of property.
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49. Disadvantages (ME) Does not provide for everyone
The too young, too old, the sick ones who can’t care for themselves
Would have difficulty surviving in a pure market economy w/o assistance from family, govt. or charitable groups
Does not provide enough of G&S
Roads
Libraries
University education
Health care
Private producers concentrate on providing products they can sell for a profit
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50. Disadvantages (ME) Has a high degree of uncertainty
Workers might worry that company might move to another country in search of lower level costs.
Employers may worry that someone else will produce better or less expensive products – taking customers
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51. Economies Based on Markets
A market economy is based on capitalism.
Supply, demand, and the price system help people make decisions and allocate resources.
People can spend money on what they want and can own resources privately.
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52. Economies Based on Markets
Advantages of a market economy include a high degree of individual freedom and customer satisfaction, a variety of goods and services, the incentive to take care of private property, and decentralized decision making.
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53. Economies Based on Markets
Disadvantages include not providing for basic needs of everyone, a shortage of some services, and a high degree of uncertainty.
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54. Comparing Economic Systems – Traditional
Advantages
Sets forth certain economic roles for all members of the community
Stable, predictable, and continuous life.
Disadvantages:
Discourages new ideas and new ways of doing things
Stagnation and lack of progress
Lower standard of living
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55. Comparing Economic Systems – Command
Advantages
Capable of dramatic change in a short time
Many basic education, health, and other public services little or no cost
Disadvantages:
Does not meet wants and needs of consumers
Lacks effective incentives to get people to work
Requires large bureaucracy, which consumes resources
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56. Comparing Economic Systems – Command
Advantages
Disadvantages:
Has little flexibility to deal with day-to-day changes
Lacks room for individual initiative
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57. Comparing Economic Systems – Market
Advantages
Individual freedom for everyone
Able to adjust to change gradually
Lack of government interference
Decentralized decision making
Disadvantages:
Rewards only productive resources; does not provide for people too young, too old, or too sick to work.
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58. Comparing Economic Systems – Market
Advantages
Incredible variety of goods and services
High degree of consumer satisfaction
Disadvantages:
Does not provide enough public goods, such as defense, universal education, or health care
Workers and businesses face uncertainty as a result of competition and change.
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