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Thursday, September 8th, 2016 Objective: Students will be able to compare the free enterprise system, socialism, and communism using the basic characteristics of economic systems. Purpose: Knowing how an economic system operates will help each of you perform certain roles effectively and how they impact others.
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Features of Centrally Planned Economies
Government makes economic decisions it controls where people work and what they are paid owns both land and capital Collective property Government decides prices and what goods are made
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Socialism Socialism: a range of economic and political systems based on the belief that wealth should be evenly distributed throughout society Economic equity, socialists argue, can exist only if the centers of economic power are controlled by the government or by the public as a whole In some nations, such as Sweden, socialism coexists with free market practices. Under this “market socialism,” the government uses its powers of taxation to redistribute wealth and provide extensive services.
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Communism Communism: central government owns and controls all resources and means of production and makes all economic decisions Communism could only result from a violent revolution Government is a dictatorship Authoritarian governments limit individual freedoms and require strict obedience from their citizens. Every communist nation has been dominated by a single dictator or political party.
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Customers at a Cuban bakery receive their daily ration of bread allowed by the Cuban government. In this situation, who is deciding how much bread is produced by this bakery?
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EXAMPLE To see how such an economy works, we will follow the decision-making process for the production of uniforms for members of the military and the production of sweaters for consumers. 1. The top planners decide that more military uniforms than sweaters will be made. They send this decision to the materials committee. 2. Knowing how much cotton is available, the materials committee decides how many uniforms and sweaters to produce. They send their decision to the makers of cotton, buttons, and elastic. 3. The cotton, the buttons, and the elastic arrive at factories, where they are used to make uniforms and sweaters. Clearly, there is no consumer sovereignty under centrally planned economies. Many people might need new sweaters but be unable to buy them because the sweaters were not produced.
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Disadvantages of Central Planning
Economic inefficiency workers lack the incentive to work faster or produce more since government fixes wages lacks the flexibility to adjust quickly to consumer demands and changing economic conditions Lack of economic freedom central planning discourages competition and takes most or all economic choices away from producers and consumers
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Disadvantages of Central Planning
Lack of economic growth discouragement of change no profit incentive Poor results Government officials and people in favored careers enjoy higher incomes and access to a wider variety of higher-quality goods Ordinary people often suffer shortages and poorly made goods
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Essay How would the United States of America be different, if we had a centrally planned economy instead of a free market economy? Use a minimum of 5 examples. Discuss and explain.
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