1. Economic Systems

2. WHAT IS ECONOMICS?
Economics - the study of how people meet their basic needs
Economists - People who study economics.

3. THE PROBLEM OF SCARCITY
Economist believe that the basic problem of economics is the problem of scarcity.
Something is scarce when we do not have enough of it.

4. THE PROBLEM OF SCARCITY
2 basic ideas of Scarcity:
People usually have unlimited wants.
A society can produce only a limited number of things at any one time
There are many things each of us wants. Even if we have them all, we would most likely find new things that we wanted.
There is only a certain amount of available goods and services. Therefore, a society cannot fulfill all of everyone’s wants

5. THE PROBLEM OF SCARSITY
The problem of scarcity involves 2 basic ideas:
A society can produce only a limited number of things at any one time
There is only a certain amount of available goods and services.
Therefore, a society cannot fulfill all of everyone’s wants

6. WHAT ARE GOODS AND SERVICES?
Goods - things that people make; for example: foods, toys, clothes, cars & houses.
Services - things that people do for others, examples: electricians, teachers, plumbers, doctors & mechanics

7. APPLYING WHAT YOU HAVE LEARNED
Suppose that everyone in the world were given 10 million dollars. Do you think that would end the problem of scarcity? Explain your answer.

8. THE FUNDAMENTAL ECONOMIC QUESTIONS
Because every society has limited resources, no society has enough goods and services to meet the unlimited needs and wants of all its members.
This problem of scarcity forces every society to answer 3 fundamental economic questions

9. THE FUNDAMENTAL ECONOMIC QUESTIONS
WHAT SHOULD BE PRODUCED?
HOW SHOULD IT BE PRODUCED?
WHO SHOULD GET IT?
Because every society has limited resources, no society has enough goods and services to meet the unlimited needs and wants of all its members.
This problem of scarcity forces every society to answer 3 fundamental economic questions

10. TYPES OF ECONOMIC SYSTEMS
Economic system - The way in which a society answers these 3 economic questions
5 economic systems:
Traditional
Free Enterprise
Communist
Socialist
Mixed

11. TRADITIONAL ECONOMY
Economic Decisions: Custom and tradition determine what should be produced, how it should be produced, and for whom

12. TRADITIONAL ECONOMY
Production: based on custom and time-honored methods.
New ideas are discouraged
Change and growth proceed very slowly

13. TRADITIONAL ECONOMY
Private Property: is no private property: owned by the family or village in common

14. TRADITIONAL ECONOMY
Trade: very little trade with outsiders, good produce & consumer locally
Barter system (trade things for things

15. PRODUCTION METHODS
Traditional economies are generally marked by subsistence agriculture and cottage industries

16. PRODUCTION METHODS
Subsistence Agriculture: primarily involved with feeding themselves from their own land and livestock, there is no surplus, so very little is sold or traded.
In most of Africa, Asia, and many parts of Latin America, people are subsistence farmers.

17. PRODUCTION METHODS
Cottage Industries: people use their spare time in their home to produce goods by hand, examples: weave cloth, make furniture and clothes, and
Help farm families meet their needs (extra income during winter months)

18. PRODUCTION METHODS
Today, traditional economies are still found in many rural, non-industrial areas.
Examples: Bedouins of Saudi Arabia, Aboriginal people of Australia, Bushmen of the Kalahari, Berbers of Algeria

19. FREE ENTERPRISE SYSTEM
Also known as capitalism or the free market system
3 fundamental questions are answered by:
Interplay between consumers (buyers) and producers (sellers)

20. FREE ENTERPRISE SYSTEM
Private Property: People have a right to own private property and to use it as they see fit with limited governmental interference
Examples: personal possessions, factories, farms, businesses

21. FREE ENTERPRISE SYSTEM
Free Enterprise: People are free to take part in any business, buy any product, or sell any legal product.
Businesses are also free to do anything they wish in order to attract customers – such as lower prices, provide better quality goods, advertise, etc.

22. FREE ENTERPRISE SYSTEM
Profit – what remains after the cost of running the business are paid
Profit Motive: The ability to make profits is what drives people to risk their money in starting a new business

23. FREE ENTERPRISE SYSTEM
HOW PRICES ARE DETERMINED
Supply and Demand: The interaction of supply and demand determine prices in a free market economy.
When demand is high, the price goes up
If the supply is high but demand is low, the price goes down

24. INTERACTION OF SUPPLY & DEMAND
HIGH DEMAND/
SHORT SUPPLY P R I C E P R I C E
LOW DEMAND/
LARGE SUPPLY

25. FREE ENTERPRISE SYSTEM MAIN FEATURES
Supply and demand is the force behind how resources are allocated/assigned.
Supply and demand lead to the distribution of resources in the most efficient way possible.

26. FREE ENTERPRISE SYSTEM MAIN FEATURES
Free enterprise economies will eliminate inefficient producers and limit the production of unwanted goods

27. FREE ENTERPRISE SYSTEM
THE ROLE OF GOVERNMENT:
Limited government interference
BUT, GOVERNMENT:
Provides and enforces common rules
Maintains a monetary system
Provides for the nation’s defense (protection)

28. FREE ENTERPRISE SYSTEM
THE ROLE OF GOVERNMENT:
Protects people’s rights to own property
Break up or regulate companies that have obtained so much power that they could defy market forces (Monopolies)

29. FREE ENTERPRISE SYSTEM
PRODUCTION METHODS:
Commercial agriculture, crop production for distribution to wholesalers and retailers
Supermarkets & grocery stores
Large-scale commercial agriculture makes production cheaper

30. FREE ENTERPRISE SYSTEM
PRODUCTION METHODS:
Commercial industries, goods manufactured in factories for sale throughout the country or overseas

31. FREE ENTERPRISE SYSTEM
EXAMPLES:
The free enterprise system exists in such nations as the United States, Great Britain, France, Chile, Japan, Canada, Germany, and Singapore

32. FREE ENTERPRISE SYSTEM
APPLYING WHAT YOU HAVE LEARNED:
Think of a good or service you bought recently.
Explain how the interaction of supply and demand most likely determined how much you paid for the product.

33. COMMUNISM Developed in the 1800s by Karl Marx
Marx believed that business owners (capitalist) use their wealth to take advantage of workers by taking away most of the value of what they produced

34. COMMUNISM
Workers would eventually rise up and overthrow their capitalist rulers in a violent revolution
Communism would be the result

35. COMMUNISM
Role of Government: All major decisions on production, distribution and the use of resources are made by government planners

36. COMMUNISM
Private Property: None, ownership abolished & national ownership of all land, factories, farms, and major resources.

37. COMMUNISM
Cooperation: Communism based on cooperation, all workers should labor together & share equally.
The economy is supposed to be run for the benefit of all members
In practice, government leaders run things to prepare for true communism

38. COMMUNISM Major Goal: The goal is to achieve a classless society
Equality among all workers

39. DOWNFALL OF COMMUNISM There once were many Communist states
Soviet Union
Countries of Eastern Europe
China
North Korea
Vietnam
Cuba
The Soviet Union and Eastern Europe abandoned Communism in the late 1980’s & 90

40. DOWNFALL OF COMMUNISM
Economies could not keep up with the goods produced by free enterprise systems
2. Without incentives most workers failed to work hard or to do their best
3. Corruption became widespread
Bribing government officials for better/more stuff

41. COMMUNISM TODAY
China, North Korea, Vietnam, and Cuba are still Communist countries
China, however, has kept it communist political system but has taken steps towards creating a free enterprise economy

42. SOCIALISM
Began in the 1800s as a political movement in response to exploitation of workers in Europe (industrialization)
Government owns major industries but allows other industries to function as a free enterprise economy also called “free market socialism” because state not involve planning.

43. SOCIALISM Some Freedoms
View the government as the best protector of workers
Some Freedoms

44. SOCIALISM
Role of Government: brings end to poverty by controlling of major resources of the nation (railroads, airlines, radio stations, banks, utility companies) and by providing public services (health care, education, food stamps, housing, etc)

45. SOCIALISM
Economic Decisions: productions, distribution and the use of resources are made by the government.

46. SOCIALISM
Private Property: Major industries are owned by the government
Other property is held privately
Small businesses and manufacturers

47. SOCIALISM
Major Goal: a fairer distribution of income among all members of society.
People’s basic needs (health care, transportation, education, housing) are met for free or at very low cost, but high taxes

48. EXAMPLES OF SOCIALIST COUNTRIES
Sweden and Israel
After WWII, most countries in Western Europe
However, sold off their public ownership of major industries in the 1980’s and 1990’s in a wave of “privatization”

49. EXAMPLES OF SOCIALIST COUNTRIES
India after its independence in 1947 until 1991
Currently moving towards free enterprise
In Africa, Ghana was Socialist but it is now also privatizing its state-owned enterprises

50. MIXED ECONOMY
In the real world, no economy follows any one economic system.
Most countries have economies that blend features of each.

51. APPLYING WHAT YOU HAVE LEARNED
Economic
Systems
What to Produce?
How is it Produced?
Who Gets it?
Traditional
Set by tradition & custom
Free Enterprise
Interaction of producer/ consumers
Producers decide how to produce
Consumers decide who get products

52. APPLYING WHAT YOU HAVE LEARNED
Economic
Systems
What to Produce?
How is it Produced?
Who Gets it?
Communism
Determined by government planners
Socialism
Consumers determine who get products