1. Economic Systems

2. Three Basic Economic Questions
What will we make?
How will we make it?
Who gets it? 1 2 3

3. Two Modern Approaches
Planned Economies
Market Economies

4. Who Owns the Factors of Production?
Land
Labor
Capital
Entrepreneurship

5. Planned Economy: Communism
“The theory of communism may be summed up in the single sentence: abolition of private property.”

6. Planned Economy: Communism
True communism a classless society
Everyone owns the factors of production
Everything distributed equally

7. Advantages of Communism
Greater income equality
Full employment
Consumers receive basic necessities

8. Disadvantages of Communism
Lack of incentive
Low quality goods and services
Lower standards of living

9. Examples of Communism China, Cuba, & the former Soviet Union…
…except not really.
No country has ever TRULY been communist

10. Socialist Philosophy Socialism = many economic rules (fewer rights)
Price controls
High taxes
Cheap or “free” healthcare, education
Safety for workers
Democratic

11. Planned Economies
If gov’t is completely in control of economy, it is a command economy
Even decides # of shoes to be produced!

12. Market Economies Also called capitalist economies
Individuals own factors of production
Gov’t stays out
Gov’t has a laissez-faire approach to production, commerce, & trade

13. Market Economies
Businesses make things, not to do good for mankind, but to make dat $$ MoNeY $$
Since consumers get to choose, producers need to make product with the right features at the right price
“Invisible Hand” of economy

14. Example: Cars
If consumers prefer one company’s car, that business will profit more & have incentive to produce more cars
Car companies that don’t will disappear

15. The Invisible Hand
Businesses & individuals meet society’s needs when they seek own self-interest
Competitive markets w/ profit-seeking businesses have incentive to produce high-quality products as efficiently as possible

16. Advantages of Capitalism
High-quality goods and services
Higher standards of living

17. Disadvantages of Capitalism
Greater unemployment
Frequent economic recessions
Greater income inequality

18. Mixed Economies
“Modern economies are neither completely free market nor planned. There’s a spectrum of government involvement.

19. Mixed Economies
Most modern economies have free markets AND gov’t intervention

20. My Pizzeria
How would my pizzeria function under different economic systems?

21. My Pizzeria in a Free Market
I answer the basic economic questions!
I determine how much cheese and pepperoni goes on the pizza
I determine the quality of the cheese and pepperoni
I set my employees wages
I set my business hours

22. My Pizzeria in a Command Economy
The government answers the basic economic questions
The government sets the amount of cheese and pepperoni on each pizza
The government determines quality of cheese and pepperoni
The government sets employees wages
The government sets business hours
Problem: What does the government know about pizza?

23. My Pizzeria in a Mixed Economy
The Government and I both answer the basic economic questions
I determine the amount of cheese and pepperoni on the pizzas; government determines the quality of cheese and pizza
I set employee wages; government sets minimum wage for employees
I determine business hours; government determines whether I am safe to be open or not

24. A Range of Economic systems Depends on Economic Rights
Command
Mixed
Free Market
USSR
Cuba
North Korea
Sweden UK
Hong Kong
Dubai
Singapore
Germany
South Africa
France
China
Canada
Greece
Peru