1. Unit 2 Lesson 7
Economic Systems

2. Three Economic Systems
Remember every economic system has to answer the three basic questions of economics.
Economic system– an organized way of providing for the wants and needs of people.
1). Command
2). Market
3). Traditional

3. Command Economies
Economic activity is planned out by the government, with people having little influence.
Examples:
Cuba
North Korea
Former Soviet Union

4. Command Economies - Pros
Allows an economy to change direction very quickly.
After Stalin’s first two Five Year Plans, Russia moved from a rural agricultural economy to an industrial economy.

5. Command Economies - Pros
Little uncertainty as to who will do what.
No unemployment because the government gives everyone a job (whether it is needed or not).
Read excerpt from Ayn Rand - Anthem

6. Command Economies - Cons
Not designed to meet the wants of consumers.
Stalin’s Five Year Plan directed resources away from both agriculture and consumer goods.
Provides strange incentives.
Do just enough to meet quotas.

7. Command Economies – More Cons
No rewards for individual performance.
No flexibility to handle problems.
Great Depression disrupted the USSR’s First Five Year Plan
Requires a large decision making agency.
Stalin’s Five Year Plans governed all economic activity in Russia…that’s a lot of paperwork!

8. Market Economies
People and businesses act in their own best interests to answer the three basic economic questions.

9. Market Economies – How they work
Lure of personal and financial gain leads consumers and businesses to interact in various markets.
Each person acts as they see fit in order to advance their own interests.

10. The First Economist – Adam Smith
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” – Wealth of Nations, 1776

11. Market Economies - Pros
Economy can adjust to change over time
Businesses can adapt to changing consumer tastes by creating new/different products.
High degree of individual freedom
Businesses and individuals are free to do what they want.

12. Market Economies – More Pros
Small degree of government interference (Mixed Economy)
Economic decisions are made by all, not limited to government officials.
Seemingly unlimited variety of goods and services available to consumers.

13. Market Economies - Cons
Does not provide for the basic needs of everyone.
Elderly, disabled and other groups would be unable to survive in a market economy without governmental assistance.

14. Market Economies – More Cons
Does not provide certain services that people value.
National Defense & Education.
High degree of uncertainty
Jobs going overseas
Market Failures

15. Traditional Economies
Economic activity is based on tradition with roles determined by previous generations.
Examples:
Medieval Europe
Various hunting tribes in Africa and northern Canada

16. Traditional Economies – Pros
Everyone knows what their role is.
Life is generally predictable and stable.

17. Traditional Economies - Cons
Discourages new ideas and new ways of doing things.
Lack of progress leads to a lower standard of living.

18. The United States Economic System
Mixed Economy
Capitalism
Based on 4 important principles
Private Property
Freedom of choice
Profit
Competition

19. The United States Four Economic Goals
Economic Freedom
Economic Equity
Economic Security
Price Stability

20. Goal 1 - Economic Freedom
Individuals have freedom to choose their own occupations, employers, and spending habits.
Businesses have freedom to choose how and where to produce goods/services.
Are we meeting this goal?

21. Goal 2 - Economic Equity
People should receive equal pay for equal work.
People should receive adequate pay for the work they perform.
People should all have the same opportunities to get ahead.
Are we meeting this goal?

22. Goal 3 - Economic Security
We should have protection from negative economic events such as layoffs and injuries.
Social Security – federal program that provides disability and retirement benefits.
Everyone should have their basic needs met.
Are we meeting this goal?

23. Goal 4 - Price Stability
We should have stable prices that protect against inflation.
Inflation – a rise in the general level of prices.
Are we meeting this goal?

24. When economic goals are not met…
…People get mad!!!!!!!

25. John Mellencamp - Scarecrow
As you listen, think about the goals of:
Economic Equity?
Economic Security?

26. Economic Systems-Bead Activity
Market
Command
Tradition
Progress: Is it Stressed?
Choice of Jobs
Motivation to Produce
How to Produce (Degree of Specialization)
What to Produce
For Whom to Produce
Base Values
Highly Stressed
To Some Degree
Not at All
Individual Preference
Government Directed
Custom Directed
Limited Social Gain
Traditional Incentives
High Self-gain
Least Cost Method
Least Cost Method
Traditional Ways
Whatever is Most Profitable
Whatever the Government Decides is Needed
Whatever was Traditionally Produced
Highest Bidder
Those Declared in Need
Distributed by Customs
Competition, Material Rewards, Self-gain, Freedom
Cooperation, “Moral” Rewards, Societal Gain, Governmental Decree
Custom, Traditional Ways and Beliefs

27. Closure Identify the three economic systems. Command Economy
Objectives
Concepts
Identify the three economic systems.
Command
Market
Traditional
Command Economy
Market Economy
Traditional Economy