1. Warm-up
Imagine you are a worker in a communist country. The government tells you where you will work, how much to produce and when to do it.
How likely are you to be innovative or efficient?
Why?
What do you think the quality of your work would be? Why?

2. Econ. Ch. 2 Sect. 3 Command Economy Goals:
1. Describe how a Command Economy is organized.
2. Explain the difference between Socialism and
Communism.
3. Identify the advantages and disadvantages of a Command Economy.

3. Command Economy
Also called Centrally Planned Economy –System where the government is the decision maker in the economy. The gov’t decides what, when and how much to produce. The gov’t owns all the land and large capital and then distributes them to the firms, decides who gets the G & S and at what price they will be sold. The gov’t controls labor, assigns workers to their jobs and sets the wages they will be paid.

4. Example of Command Economy
Uniforms vs. Sweaters
Gov’t decides that they want new uniforms.
Cotton, buttons, workers etc. are divided up according to decision, more goes towards uniforms
More uniforms = less sweaters
What happens if the winter is cold and people need more sweaters?

5. Socialism vs. Communism
Socialism- social and political philosophy that wealth should be distributed equally across society.
Socialist countries could be Democracies
Political Equality + Economic Equality = Real Equality
Communism – political system that has an authoritarian gov’t (dictator) that has all the economic and political power. The gov’t requires strict obedience and allows little personal freedom. Communists believe that revolutions are necessary to eliminate previous gov’t in order to change society.

6. Soviet Union The Soviet Union was a Command Economy
It controlled all the factors of production and had collective farms where peasants were assigned the crops they would grow.
Jobs were assigned to workers regardless of their preferences and wages were set by the gov’t. It was illegal for someone to start their own business.
The worker’s wages were low, but prices set by the gov’t were usually low as well. Though prices were low, consumer goods were scarce and usually poor quality.
Housing was poor quality and often crowded because there was no incentive to build more or maintain.

7. Advantages and Disadvantages
Can jumpstart selected industries when country is new or struggling
Guarantees jobs, wages and housing to citizens
High Economic Equity – Distribution of G & S is equal across the board
Disadvantages-
Poor quality of goods, shortages and low innovation
Individual Freedoms are sacrificed for gov’t goals
Sochi Fails

8. Income Inequality in America

9. Mixed Economies have elements of both free-market and command market systems. What are some advantages you can see for having government involvement in the free market?

10. 1. Explain the appeal of a Mixed Economy.
Mixed Economies
Goals:
1. Explain the appeal of a Mixed Economy.
2. Describe the Circular Model of a Mixed Economy.

11. Mixed Economies
Traditional Economies have little incentive for growth and innovation. Free Market Economies have low economic equity and low security/predictability. Command Economies have low economic freedom and low quality for G & S. Over time, nations have determined that a market-based economy with some government involvement is the best way to answer the economic questions.

12. Laissez Faire and its Limits
Laissez Faire – (literally “Let them do”) the belief that the government should stay out of the economy and let the market take care of itself.
What are some needs/wants that the market would not have the incentive to satisfy?
Due To Costs: Due to Fairness:
National Defense Education
Roads / Highway Systems Healthcare

13. Limits of Laissez Faire cont.
Property Rights and Patents – Without gov’t enforcement and protection of property, people would be concerned about their ideas/inventions being stolen or compromised by large corporations Competition – Without anti-monopoly laws, a laissez faire situation could lead to a few mega-corporations having control of the market. Limited gov’t involvement allows the market to do what it does best (competition and quality) but ensures a fair market, and provides the G & S that otherwise would not be available to the general public

14. Circular Flow Model of a Mixed Economy
Households and Firms are still playing the same roles Now Gov’t is acting in both the factor and product market as well

15. Circular Flow Model cont.
Gov’t in Factor Market:
Gov’t employs workers (wages paid to households)
Rents/Buys land from households
Borrows Capital – Savings Bonds that pay interest to households

16. Circular Flow Model cont.
Gov’t in Product Market: Gov’t purchases G & S from firms and households using tax money i.e. equipment, service contracts, supplies Gov’t provides G & S from firms and households using tax money i.e. roads, public education, military

17. Mixed Economy Continuum
Mixed Economies where Gov’t Dominates North Korea – 95% of industries are state-owned, imports are banned, and foreign companies are forbidden China – 25% of industries are partly owned by individuals, some foreign companies are allowed to operate
Mixed Economy where the Market Dominates
Hong Kong – government protects private property, but rarely interferes with free market, very open to foreign businesses, Banks are run independent of gov’t.

18. Examples of Restriction on Economic Freedoms
Examples of Freedoms
Examples of Restriction on Economic Freedoms
Freedom for individuals to own and use property as they choose
Buy a house, land, or business of your choice
Requirements to pay property taxes, taxes on earnings/profits to pay for government services
Freedom to make voluntary exchanges between individuals, regions and nations
Owners of clothing stores may purchase clothing made in other nations and offer them for sale in their stores
Government taxes/tarrifs on imports or limits on how much can be brought in
Freedom for individuals to use their income as they wish
Buy a car of your choice
Required to obey traffic laws and obtain a license or pay tickets/fines

19. The Economy of Ancient Greece
Greek city-states developed a system of land ownership and the right to buy or sell products made from other city-states Easy access to the sea permitted and encouraged trade Greek colonies had unrestricted access to markets on Greek mainland, they traded wheat, meat, fish, leather, wool, timber and metals People on Greek mainland produced wine, pottery, perfumes and art Greeks used coined money to make trading easier, leading to a greater expansion of trade

20. Why have most nations decided on a mixed economy to some degree?
Goal Check
Why have most nations decided on a mixed economy to some degree?
Explain the Circular Model of a Mixed Economy.
Compare the Mixed Economies of different nations on a continuum.