1. Standard SSEF4 – Compare and Contrast Economic Systems

2. The 3 basic Economic Questions
Every society has to address these questions because of scarcity.
1. What should be produced?
Should we make TV’s and computers, cars and trucks, or military tanks and airplanes? How much of each thing should we make?
2. How should it be produced?
Should we invest in technology, capital goods? Should we allow one company to make all the TV’s or allow smaller companies to compete in making TV’s?
3. For whom should it be produced?
Based on price system in U.S. – should we make expensive products that only the wealthy can afford or focus on everyday items that are less expensive?

3. Types of Economies Command Economies
In ancient societies, people didn’t have the resources to answer the economic questions. They relied on powerful kings to decide what was produced, how it was produced, and who received it.
Rulers of ancient Egypt, China, and India commanded all the workers in their land, and these rulers took most of the wealth the workers produced.
A command economy is one in which the government makes all basic decisions.

4. Command Economies
In the 20th century a different type of command economy evolved. In the Communist nations of Russia and China, gov’ts made all the economic decisions in an effort to see that the basic needs of citizens were met.
Government committees tried to predict all the things people would need. They took control of all resources, decided what should be produced, and how to distribute goods and services.

5. Command Economies
These command economies were inefficient and doomed to fail. Why?
Because of the size and complexity of the nations. One group could not possibly compile enough information to decide how to distribute enough clothing, food, and everyday items, while at the same time allocating resources needed for construction projects, transportation, and other public works.
Main disadvantage of command economy – inefficient - often face shortages, or surpluses of goods, and wasted resources

6. Other disadvantages of Command Economies
They cannot respond quickly to changing needs and conditions
They provide no incentive to workers or producers to use resources efficiently, because wages are not based on productivity and profit.
No freedom to make decisions
No opportunity to improve standard of living.

7. Advantages of Command Economies
Wealth is equally distributed (except for the government officials who have more)
Job security – you will have a job that the government will provide
In theory all your needs are taken care of for you by the government.

8. Examples of modern command economies
Eventually, the failure of command economies led both Russia and China to begin transforming their societies to become more like the market economies of North America and Europe.
Some still exist – North Korea, Cuba

9. Market Economies
Based on private ownership. Private individuals and companies control resources, not the government.
Private companies decide what to produce and how to produce it.
Distribution of goods and services is determined by prices, which reflect the laws of supply and demand. (You’ll learn more about supply and demand later!)

10. Advantages of Market Economies
Very efficient because they are based on competition. Producers compete with each other to sell products people want, which drives down prices.
Competition – exists between producers and consumers, which results in the best products at the low prices.
Profit motive – incentive to make profit
Freedom – Consumers and producers have freedom to make choices and improve standard of living
Laissez-faire approach – capitalism – French for “to leave alone” – means that the government does not interfere with free markets.

11. Disadvantages of Market Economies
No government assistance for those of low income and poverty.
Unequal distribution of wealth – fairness, or equity, is not guaranteed. Some are fortunate or clever enough to make a fortune, and some remain poor. Producers have no motivation to provide help to the poor, so they don’t.
Do not always serve the public good.

12. Examples of a Market Economy
U.S.
Great Britain
Australia
Japan

13. Mixed Economies
Because true market economies would not be controlled by the government, and therefore would not always serve the public good, most economies today are based on a mixture of market forces and government control.
So, the U.S. would be considered what type of economy?

14. Mixed Economies
Today there are very few pure command or pure market economies. Most are a mixture.
At the very least, governments enforce property rights, contracts, patents, and copyrights
Adv. - They provide a stable money supply and provide assistance for low-income families.
Adv. - They also provide public goods and services like parks, highways, public education, and defense.

15. Disadvantages of a Mixed Economy
Provides more services but costs for benefits means higher costs for citizens (taxes)
Economic downturn means less money for programs and services

16. Examples of a Mixed Economy
India
China
Norway

17. Continuum of Economic Systems
Command
Market
Mixed

18. Summary Command Market Who owns resources?
Who answers economic questions?
How important is competition?
How well does it respond to change?
How important is fairness?
How much security is there?
How much freedom is there?