1. Economic Systems
Capitalism - An economic system based on the “Survival of the fittest”.
Socialism – An economic system based on “You get your share no matter what your contribution is”.
Communism – An economic system based on “You put in your fair share, you get your fair share”.

2. Economic Systems
Economic System – organized way in which a society provides for the wants and needs of its people – basically it is the system it uses to answer the three basic economic questions
Three kinds of systems exist
Traditional
Market or Free-Market, Free-Enterprise, Capitalism
Command or Planned (Communism)
Economies really are usually Mixed

3. Traditional Economies
Characteristics: the allocation of scarce resources and other economic activities are based on ritual, habit, or custom
Examples: many indigenous societies have traditional economies, Inuit, Australia’s Aborigines, central African Mbuti
Advantages:
everyone knows which role to play,
Stable, predictable, and continuous life, born into a family of hunters = you are a hunter

4. Traditional Economies
Disadvantages:
discourages new ideas
Stagnation and a lack of progress
leads to a lower standard of living

5. Command Economies
Characteristics: a central authority makes the major decisions about what, how, and for whom to produce.
It can be headed by a king, a dictator, a president, or a small group.
In a pure command economy, the government makes the major economic decisions
Private property rights are severely limited
Individual freedom is limited – government might tell you what your career is

6. Command Economies Examples: Cuba, North Korea (map on next slide)
Advantages:
a country can change direction very quickly ex. USSR was able to industrialize rapidly by focusing on the growth of heavy industry.
health and public services are available to everyone at little to no cost
Disadvantages:
they ignore the basic wants and needs of consumer ex. USSR people stood in long lines to get scarce consumer goods.

7. Command Economies
The system gives people the incentive to fulfill their quota instead of producing good products ex. Parking lot activity
The system requires a large decision-making bureaucracy – this slowed decision making and raised the cost of production
The system lacks the flexibility to deal with minor day-to-day problems
Lacks room for individual initiative
Lacks effective incentives to get people to work hard

9. Market Economies
Characteristics: people make decisions in their own best interests
People have a great deal of freedom – their dollars “vote” in the market
Producers are free to determine how to answer the three basic economic questions
Capitalism – private citizens own the factors of production
Examples: the U.S. Japan, South Korea, Singapore, Australia, most of Europe – the most prosperous countries in the world

10. Market Economies Advantages: Disadvantages:
Individual freedom for everyone
Able to adjust to change gradually
Lack of government interference
Decentralized decision making
Incredible variety of goods and services
High degree of consumer satisfaction
Disadvantages:
Rewards only productive resources – does not provide for people too young, too old, or too sick to work

11. Market Economies
Does not produce enough public goods such as defense, universal education or health care
Workers and businesses face uncertainty as a result of competition and change

12. Mixed Economies
Characteristics: Most countries have systems that combine elements of all three types
Socialism is a mixed economic and political system in which the government owns an controls some, but not all, of the basic productive resources – government also provides some of the basic needs of its people, such as education and health care
Examples: China = traditional in rural areas, government makes most decisions, but is starting to allow some private ownership. Norway = government owns the petroleum industry and provides social welfare, education, roads etc.

13. Mixed Economies Advantages: Disadvantages:
Provides assistance for people who would be left out
Voters can use the democratic process to affect the what, how, and for whom questions
The for whom question is addressed more directly
Disadvantages:
The cost of providing services to people who would be left out can increase costs for all
Some services may be limited
Often is less efficient than pure capitalism

14. Economic and Social Goals
Economic Freedom – can choose occupations, producers choose how, what, and for whom
Economic Efficiency – do not want to waste any resources
Economic Equity – equal pay for equal work etc.
Economic Security – protection from losing job or being injured – social security system
Full Employment – the economy runs better when everyone has a job – the Employment Act of 1946

15. Economic and Social Goals
Price Stability – inflation (a rise in the general level of prices) can be very harmful – it hurts workers whose wages don’t keep pace, crushes people living on a fixed income, and can discourage business activity – Also in the Employment Act of 1946
Economic Growth – it enables more people to have more goods and services – growth must happen if the nation’s population is growing
Trade-Offs must happen when goals conflict ex. unemployment vs. inflation or economic freedom vs. economic equity

16. American Free Enterprise
Free Enterprise – resources are privately owned, and competition is allowed to flourish with a minimum of government interference – the unhindered use of privately owned resources to earn profits
Characteristics:
Economic Freedom – people may choose their jobs, employers, and how to spend their money. Businesses may choose what products to sell and how much to charge for them

17. American Free Enterprise
Voluntary Exchange – buyers and sellers may engage freely and willingly in market transactions
Private Property Rights – people may control their possessions as they wish
Profit Motive – people and organizations may improve their material well-being by making money
Competition – producers and sellers compete with one another to attract consumers, while lowering costs. Consumers compete with one another to obtain the best products at the lowest prices

18. The Role of the Entrepreneur
The Entrepreneur organizes and manages land, capitalism and labor in order to seek the reward called profit
They take risks to start businesses in hopes of earning profits – they drive the American Free Enterprise system. They create products and jobs

19. The Role of the Consumer
Consumers determine which products will be produced – consumer sovereignty – role of consumer as ruler of the market when determining the types of goods and services produced – “The customer is always right”
Consumers “vote” with their dollars in the marketplace
New Coke failed horribly

20. The Role of Government
The power of the government in the economy comes from the people
Roles of the government:
Protector – enforces laws against false advertising or unsafe products etc.
Provider – provides goods and services – national defense, roads, etc.
Regulator – preserves competition and oversees industries to ensure fair practices
Consumer – very large consumer of goods and services