1. Comparative Economics Prepared by :Dr.Hassan Sweillam

2. Part one :Economic Systems

3. Economic Systems What is an economic system?
A country’s economy or economic system is that society’s way of coordinating the production and consumption of goods and services.

4. Economic Systems There are four basic types of economic system
1- Traditional economy
2- Market economy
3- Command economy
4- Mixed economy

5. 1- Traditional Economies
Custom and tradition dictate what to produce, how to produce it, and for whom.
Hunting, fishing and farming are the main economic activities in such an economy.
Although traditional economies are rare in the 21st century, some still exist (e.g., in Papua New Guinea); Eskimos

6. The advantages and disadvantages of a traditional economy
Traditional economies rarely achieve the goals of economic freedom.
Traditional economies often provide economic security
Rarely achieve, economic growth, and a high standard of living
Traditional economies also tend to be sustainable because they grow slowly.
They also tend to be resistant to change, technological or otherwise.
They also tend to emphasize a relatively equal distribution of goods and services.

7. 2- Free Market (Capitalist) Economies
Economic decisions are made by individuals competing to earn profits based on supply and demand
Resources are owned by individuals.
Profit, not quotas, is the motive for increasing work
Competition determines price and increases the quality of products

8. 2- Free Market (Capitalist) Economies
Individual freedom is considered very important; individuals have freedom to make economic decisions
Also called “capitalist” economy
Wide variety of choices and products
The government plays little if any role in the marketplace
Property rights are very important
U.S., Japan

9. The advantages and disadvantages of a Market economy
Does not always provide basic needs of everyone in society, which can lead people to slip into poverty
Prices determine by market forces (supply and demand); competition brings down prices
Market economies do not do very well in terms of economic security.
Little government intervention
-May make it difficult for government to provide adequate social services
Capital flows to where it will get the greatest return

10. The advantages and disadvantages of a Market economy , cont.
Resource conservation is another challenge for market economies.
Great variety of goods and services
People can make choices which are harmful to themselves and to others
Consumers can buy whatever they like in whatever amounts they want

11. 3- Command Economies
The government or other central authority makes all economic decisions
Individuals have little, if any, influence over economic functions
Resources are owned by the government -There is no competition; the purpose of business is to provide goods and services, not to make a profit
Factories are concerned with quotas
Consumers have few, if any, choices in the market place
The government sets the prices of goods
No private ownership
Communism
Old Soviet Union, Cuba
and North Korea

12. The advantages and disadvantages of a Command economy
have not in practice tended to work out very well. The Soviet Union’s economy, for example, failed.
Command economies can provide economic security
limited economic freedom and provide little incentive to people to work hard.
Distributes wealth among all of society
No economic efficiency. Often there is insufficient resource distribution, Cannot determine societies objectives and consumer preferences.
Products produces fulfill needs

13. 4- Mixed Economies
Combines elements of pure market and command economies;
Government and individuals share the economic decision making process
Government guides and regulates production of goods and services
Resources are owned by individuals

14. 4- Mixed Economies ,cont.
Government serves to protect both producers and consumers from unfair policies and practices
The government’s role in a mixed economy could vary considerably from country to country.
In some its function could be limited to enforcing the laws and regulating the currency whereas in others it could involve many of the trappings of the welfare state, such as universal health care,
E.g. U.K , Common in Europe,
Latin America, and Africa

15. The advantages and disadvantages of a Mixed economy
mixed economies can differ greatly from each other.
Mixed economies tend to be more equitable than market economies.
the government’s role in the economy may be fairly limited in some economies whereas in others the government may be very involved.
have a better track record than market economies in terms of economic security and sustainability.

16. Part Two: Economic Schools

17. Classical School Adam Smith
18th century Scottish economist
Published “The Wealth of Nations” in 1776
Explained the workings of the free market within capitalist economies
Invisible hand of the market

18. Economics is the study of nature and uses of national wealth.
Adam Smith (cont.)
Economics is the study of nature and uses of national wealth.
Father of Economics
Adam Smith ( )

19. Adam Smith (cont.)
The Classical school, which is regarded as the first school of economic thought, is associated with the 18th Century Scottish economist Adam Smith.
The main idea of the Classical school was that markets work best when they are left alone, and that there is nothing but the smallest role for government.

20. Adam Smith (cont.)
Laissez-faire - Government stays out of business practices “hands off” to let the market place determine production, consumption and distribution.
Markets should be left to work because the price mechanism acts as a powerful 'invisible hand' to allocate resources to where they are best employed.
Individual freedom and choice emphasized.

21. Principles of Capitalism
Competition – more businesses means lower prices and higher quality products for consumers (US!) to buy.

22. Principles of Capitalism
Private Property – Individuals and businesses MUST be able to get the benefits of owning their OWN property. Government doesn’t control it.

23. Principles of Capitalism
Consumer Sovereignty – consumers get to make free choices about what to buy and this helps drive production (Demand drives Supply).

24. Principles of Capitalism
Profit Motive – people want to make or save $$$$. Their “Self Interest” motivates Capitalism.

25. Marxian School 19th century German economist
Author of “Communist Manifesto” and “ Das Kapital”
Government should control economy and distribute goods and services to the people
Founder of revolutionary socialism and communism
Karl Marx

26. Communism Falls Market reforms in China in the mid 1970s.
Fall of the Berlin Wall in 1989.
Collapse of the Soviet Union 1991.
Free Market Capitalism (w/ some Mixed Economies) the only show in town.

27. Keynesian School John Keynes The Invisible Hand doesn’t always work.
“The long run is a misleading guide to current affairs. In the long run we are all dead.” or the trouble is people eat in the short run.
John Keynes

28. Keynesian Economics (cont.)
Government should intervene in economic emergencies through tax and spending (Fiscal Policy) and changing the money supply (Monetary Policy).
This is done to smooth out the business cycle (expansion and recession) and keep inflation low.

29. Mixed Economy/Socialism
Government involvement and ownership and control of property, of decision making, and companies.
Government control of business
Social “safety net” for people
Socialism
Common in Europe, Latin America, and Africa

30. Economic Systems

31. Review questions True or False Questions
1- There are three basic types of economic system .
Answer: False
2- Hunting, fishing and farming are the main economic activities in free market economy.

32. Review questions True or False Questions
3- Mixed economies combines elements of pure market and command economies.
Answer: True
4- The Classical school, which is regarded as the first school of economic thought, is associated with the 18th Century Scottish economist Adam Smith.

33. Review questions Multiple Choice Questions
1- _________ Also called “capitalist” economy.
A- Traditional economy
B- Mixed economy
C- Command economy
D- Free market economy
Answer: D

34. Review questions
2- ____________ state that government should control economy and distribute goods and services to the people.
A- The Classical school
B- The Marxian school
C- The Keynesian school
D- None of these
Answer: B

35. Review questions
3- The Classical school state that Markets should be left to work because the _______ acts as a powerful 'invisible hand'.
A- Social mechanism
B- Goods mechanism
C- Command mechanism
D- Price mechanism
Answer: D

36. Review questions Brief explain Questions
1- Briefly explain the basic types of economic system ?
2- Briefly explain the classical school of economic ?
3- Briefly explain the Command Economies with its advantages and disadvantages?
Brief explain Questions