1. Economic Systems

2. 3 Questions WHAT to produce? HOW to produce? FOR WHOM to produce?
How a society answers these questions depends on the type of Economic System they practice.
Different societies have different social and economic goals and different priorities

3. Economic Goals Economic Efficiency Economic Freedom
Make the most of your resources
Economic Freedom
Freedom from government intervention
Economic Security and Predictability(price stability)
Good/services will be available, payments made on time, and a safety net
Economic Equity
Fair distribution of wealth
Economic Growth and Innovation
Innovation and higher standard of living
Additional Goals
IE: environmental protection, full employment, universal medical care, sustainability, etc.

4. Characteristics of Economic systems
Private ownership
Individuals have the right to own property and government protects property rights. Examples:
Profit motive
An incentive to earn profits drives entrepreneurs to find new, or newer, more efficient means of production
Consumer sovereignty
Consumers “vote with their dollars”; determine what gets produced and what quantity. If you’re willing to pay for it, somebody will produce it.
Competition
Producers compete for consumers dollars and consumers compete with each other to get goods and services. Competition helps keep prices low and quality high.
Government regulation
Varies with each system from very limited to total government control of the means of production

5. Types of Economies Traditional Economy Market Economy Command Economy
Relies on habit, custom, or ritual
Market Economy
Decisions on production/consumption are based on voluntary exchanges in the market
Command Economy
Central authority is in command of the economy
Mixed Economy
Elements of Market-based economic system with varying levels of government involvement

6. Traditional Economy STRENGTHS WEAKNESSES -Everyone knows their role
Security
- Discourages new ideas and new ways of doing things- inefficient
- certainty exists over WHAT and HOW to produce -Security /predictablity
- Possible punishment for breaking rules or acting differently-lacks freedom, no profit motive
- 3 questions = traditions/customs
Lower standard of living
No growth
Life is generally stable, predictable, and continuous
Basic needs are met
Little/none private property, competition, no Consumer Sovereignty
EXAMPLES: Inuit, small communities around the world, Amish

7. Market Economy STRENGTHS WEAKNESSSES
- Adjust to change over time Efficiency
- FOR WHOM (rewards go to the most productive resources)
- Freedom exists for everyone (economic)
less equity
Gov’t involvement is limited to protecting property and providing public goods: Growth
Basic needs not met for all, possibly
Decision making is decentralized
Freedom/ consumer sovereignty
- Variety of goods and services (competition and private property)
- High degree of consumer satisfaction (consumer sovereignty)
EXAMPLES: United States, Hong Kong , Mexico, Canada, Japan
There are NO PURE Market economies, but these are the closest.

8. Command Economy STRENGTHS WEAKNESSES
- Can change direction in a relatively short time
- Not designed to meet individual wants/needs no consumer sovereignty, little private property
Equity- all needs are met
- Lack of incentives no profit motive or competition, little growth
- Requires large decision-making bureaucracy ; lacks efficiency
No flexibility to deal with minor day-to-day problems lacks efficiency
People with new/unique ideas can’t get ahead ( no profit motive)
Very little if any freedom
EXAMPLES: North Korea, Cuba, Iran, Communist China, former USSR

9. Mixed Economy STRENGTHS WEAKNESSES
Varying levels of gov’ t interference*
- Difficult to transition from centrally planned (Command) to free market
High level of economic freedom
More equity, basic needs help
Safety net for all
- Not enough involvement from the government vs. too much involvement already
Foreign investment/free trade are encouraged
Variety of goods and services
*The government will use influence to keep order, provide vital services, and to promote the general welfare.
EXAMPLES: All modern economies

10. Role of Government in Market Economies SSEF5a,b
Protect private property
Examples:
Provide public goods and services (those goods and services not efficiently provided by the market)
Redistribute income
Correct market failures: free markets are generally efficient, yet if there is under/over production, it’s a market failure.

11. Government Regulation/Deregulation
Effects on consumers: Gov. Regulation is usually intended to protect consumers or society in general. Ex: product safety, food labeling, labor laws to protect workers, etc.
May have adverse effects: child safety seats on airlines.
Regulation may increase cost which means higher price for consumers.
Is that bad?
Airbags, Seat belts, etc. in autos; we are willing to pay more

12. Government Regulation/Reregulation
Effects on Producers: Gov. regulation tends to increase the cost of production. If that cost is passed on to consumers—higher prices for consumers; if not, lower profits for producers.
Deregulation is usually in the interest of the business; lowers cost. If that lower cost is passed on to consumers—lower prices for consumers; if not, higher profits for producers.
There is no uniform approach to the regulation/deregulation balance; different needs and different results in different markets.

13. Continuum of Mixed Economies
FREE MARKET CENTRALLY PLANNED
Hong Kong U.S. Mexico France China North Korea
Singapore U.K South Africa Iran Cuba
Canada Poland Japan Russia

14. Works Cited http://www.united-states-flag.org/