1. The Three Economic Questions And The Four Economic Systems

2. Economics
Definition: The social science that deals with the production, distribution, and consumption of goods and services.

3. Every society must answer three economic questions:
What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?

4. Four Economic Systems
Traditional
Command
Market
Mixed

5. Traditional Economic System
Ritual
Habit Custom
The basic economic questions are answered by doing things the way they have always been done.

6. Traditional
A system in which the production is the result of ritual, habit, and custom (It is generational).
Examples – Half of the African nations and other tribal states tend to have traditional economies.

7. Advantages
Sets forth certain economic roles for all members of the community
Stable, predictable, and continuous life
Revolves around family
Communities stay relatively close and small

8. Disadvantages
Discourages new ideas, new technology, and new ways of doing things
Stagnation and lack of progress
Lower standard of living – lack modern conveniences
Have few mechanisms in place to deal with disasters such as floods, drought

9. Command Economic System or Centrally Planned
Government Or
Central Authority Committee
Basic economic questions of what, how and for whom to produce are answered by a central planning authority.

10. Command Economy
An economic system in which the production is controlled by the state.
Examples – Cuba, North Korea, China, and Iran

11. Advantages Central authority is in command of the economy
Capable of dramatic change in a short time
Little uncertainty over choice of career, where to work, or losing job
Many basic education, public health, and other public services available at little or no cost

12. Disadvantages Does not meet wants and needs of consumers
Lacks effective incentives to get people to work
Requires large bureaucracy, which consumes resources
New and different ideas discouraged, no room for individuality

13. Problems of a Command (Centrally Planned) Economy
Centrally planned economies face problems of poor-quality goods, shortages, and diminishing production.

14. Market Economic System (Free Market, Capitalism)
Buyers and Sellers
Dollars
“Vote”
Basic economic questions answered by having buyers and sellers make economic decisions.

15. Market Economy
A system in which the production is owned and operated for profit.
Example – The people are running the businesses.

16. Advantages Overtime, can adjust to change
Individual freedom for everyone
Little government interference
Decentralized – not concentrated in the hands of a few
Variety of goods and services
High degree of consumer satisfaction

17. Disadvantages
Rewards only productive resources; does not provide for people too young, too, old, or too sick to work
Workers and businesses face uncertainty as a result of competition and change – no guarantee for job
Does not produce enough public goods such as defense, universal education, or health care

18. Mixed Economic System
A combination of both state-run and private enterprises.

19. Mixed Economy
A system in which the production is a combination of both private and state run businesses.
Most economies in the world are mixed economies
Example – The United States is considered to have a mixed economy

20. Mixed Economic System
A combination a traditional, market, and command economies.
Need government intervention – create laws protecting property rights and enforcing contracts
Governments provide for national defense, roads and highway systems, conservation, environmental protection, education
Key is to balance control and freedom

21. The degree of government involvement in the economy varies among nations.
Continuum of Mixed Economies
Centrally planned
Free market
Iran
North Korea
Cuba
China
Russia
Greece
Peru
United States
South Africa
France
United Kingdom
Botswana
Canada
Singapore
Hong Kong

22. Cave-o-nomics (6:46 min)

23. Developed v. Developing
Gross Domestic Product (GDP)
The amount of goods and services produced by a state in one year.
A key indicator of the level of development of a state.
Per Capita GDP
Total GDP number divided by the population to deliver a per person share of GDP.
Social, demographic, and economic indicators distinguish less developed countries from developed countries.
What are some specific differences between developed and developing countries?

24. Characteristics of Developed Countries
Good natural resources
Energy
High literacy rates
High GDP
Stable government
Strong economy
Good medical care
Long life expectancy
Examples – United States, United Kingdom, Germany, Japan

25. Characteristics of Developing Countries
Low GDP
High poverty rate
Low literacy rate
Low life expectancy
Unstable economy
Unstable government
Weak industrial base
Examples – Haiti, Kenya, Rwanda, Vietnam

26. Developed Countries Vs. Developing Countries (4:07)

27. Additional Vocabulary
Embargo: Suspension of trade with another country.
Gross Domestic Product: GDP is the total economic production of a State in a given year. GDP is also an indicator of the level of economic development of a State.
Per Capita GDP: The amount of production in a state in a given year divided by its population
Boom/Bust Cycle: Up and down cycle of a market economy characterized by alternating periods of economic growth and contraction.
Recession: Short term negative GDP growth in a State’s economy
A decrease in GDP over 6 months.
Depression: Long term, persistent negative GDP in a State’s economy
An economic depression is a really long and persistent recession.

28. More Information
Most countries in the world are considered DEVELOPING. Why?
Africa’s economy depends on its abundant mineral resources.
The Middle East’s economy depends on oil/petroleum.
Many nation’s economies depend on world demand for their goods to succeed.
Latin American countries have a hard time attracting investments from world groups due to political instability.
Literacy Rate is most often based on the percent of the population over the age of 15 that can read and write

29. Government Regulators in Action!

30. Government Regulators in Action!
Describe a free-market economy.
Why can government regulations be bad?
What is good about government regulations?
What does it mean to monopolize?
What type of economic system is completely controlled by government regulation?