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Economic Systems. What is an economic system? Remember SCARCITY – b/c scarcity exist, different societies must come up with methods for distributing their.

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Presentation on theme: "Economic Systems. What is an economic system? Remember SCARCITY – b/c scarcity exist, different societies must come up with methods for distributing their."— Presentation transcript:

1 Economic Systems

2 What is an economic system? Remember SCARCITY – b/c scarcity exist, different societies must come up with methods for distributing their resources Economic System = Method used by a society for distributing goods/services Three Types of Systems – 1. Command 2. Market 3. Mixed How do we determine which type of economic system a society has? By looking at two concepts 1. How they answer the three economic questions 2. Where they value certain economic goals

3 Three Economic Questions Each society faces three key economic questions – it is how the society answers them, that will determine which “system” they use 1. What goods and services should be produced? (given their current resources) 2. How should these goods/services be produced? 3. Who will consume (buy) these goods/services? Again, determining how a society answers these questions can help tell us what type of economic system they have.

4 Economic Goals In addition to how a society answers the THREE questions, we also look at their economic GOALS There are six main goals in economics – determining where a society places these goals on a scale of importance can help us determine what type of system the have 1. Economic Freedom 2. Economic Efficiency 3. Economic Stability 4. Economic Equity 5. Economic Growth 6. Economic Security

5 Economic Freedom Many economic decisions are left up to the society to make – not the government Limited government influence, but still present Freedom of choices – like what you can buy, where you can work, what you can sell etc

6 Economic Efficiency Maximizing resources to their fullest extent Doesn’t waste resources on things consumers will not use. Example: Do not try to make air conditioning units to sell in Alaska during December – you are wasting time and resources.

7 Economic Stability Maintaining a stable market and workforce Prices are stable, jobs are stable, etc Maintaining a good Standard of Living Standard of Living = level of economic prosperity (how well you enjoy life) Strive for high levels Ex: minimum wage, price maximums, slow inflation

8 Economic Equity Focuses on FAIR distribution of resources – same for all Everyone should get equal amounts – no elite or wealthy and no poor or bottom Prices are even

9 Economic Growth Encourage innovation, technological advances, new ideas, etc. Believes society cannot be successful without moving forward Invest in factors of production

10 Economic Security Assuring that goods/services are available Ensure that payments are made and providing safety nets for hard times Ex: Programs in place to prevent depressions

11 Command Economy In a command economy ( also called centrally planned economies) Government answers the three economic questions Goals they prioritize tend to be equity, stability, and security Goals they DO NOT prioritize - economic freedoms Same prices, same goods/services, lack of competition, not a lot of encouragement for innovation b/c everyone is seen as equals Pros and cons

12 (free) MARKET ECONOMY Individuals aka Consumers and Producers answer the three economic questions NO government regulations or involvement Involves VOLUNTARY exchange or trade Adam’s Smith Invisible Hand – leave the economy alone, and it will work on its own. The relationship between buyers and sellers is natural Also called FREE MARKET, PURE MARKET or CAPITALISM Consumers control many decisions – if they do not like a certain product/service and do not pay for them, then the producer will stop producing the good/service

13 Mixed Economy Both Government and Individuals answer the three economic questions Government should balance the risks of Capitalism while still allowing for individuals to make decisions U.S. has “Market” based Mixed economy in which gov’t plays a LIMITED role A combination of market and command


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