1. Economic Systems

2. Why do we have Economic Systems?
Survival for any society depends on its ability to provide food, clothing, and shelter for its people.
The Economic System is the organized way a society provides for the wants and needs of its people.

3. Economic Systems
An economic system describes how a country’s economy is organized
Because of the problem of scarcity, every country needs a system to determine how to use its productive resources
Scarcity =
a permanent lack of resources
not having enough of something
An economic system must answer 3 questions…

4. Key Economic Questions
WHAT TO PRODUCE?
What kinds of goods and services should be produced?
HOW TO PRODUCE?
What productive resources are used to produce goods and services?
FOR WHOM TO PRODUCE?
Who gets to consume the goods and services?

5. Economic Systems Traditional Economy Command Economy Market Economy
Mixed Economies
Most are mixed

6. Traditional Economy
Economic activity is based on ritual, habit and custom

7. Traditional Economy Examples: Villages in Africa and South America
the Inuit tribes in Canada
the caste system in parts of rural India
the Aborigines in Australia

9. Traditional Economy
An economic system in which economic decisions are based on customs and beliefs
People will make what they always made & will do the same work their parents did
Exchange of goods is done through Bartering: trading without using money

10. Traditional Economy Who decides what to produce?
People follow their customs and make what their ancestors made
Who decides how to produce goods & services?
People grow & make things the same way that their ancestors did
Who are the goods & services produced for?
People in the village who need them

12. Strengths of Traditional Economies
Everyone knows their role
Little uncertainty over what to produce or how to produce
The question of For Whom to produce is answered by custom
Life is generally stable, predictable, and continuous

13. Weaknesses of Traditional Economies
Tends to discourage new ideas
Lack of progress leads to lower standard of living

14. Economic PhilosophersMarxist / Communist
Karl Marx
Freidrich Engles
Vladimir Lenin
founded the
Soviet Union

15. Command Economy Central authority makes most economic decisions
Economic decisions are made at the top and the people are expected to go along with choices their leaders make

16. Command Economy
Government makes all economic decisions & owns most of the property
Government planning groups determine such things as the prices of goods/services & the wages of workers
This system has not been very successful & more and more countries are abandoning it

17. Strengths of Command Economies
Change direction drastically in a relatively short time (The USSR went from an agrarian to industrial nation in a very short time)

18. Command Economy Who decides what to produce?
Government makes all economic decisions
Who decides how to produce goods and services?
Government decides how to make goods/services
Who are the goods and services produced for?
Whoever the government decides to give them to

19. Command Economic System
Countries with communist governments have had Command economies
Examples: There are no truly pure command economic systems, but close countries are: North Korea and Cuba
*China and Russia have moved away from having command economies since Now they have mixed economies, but still government planning and intervention.

20. Weaknesses of Command Economy
Not designed to meet the wants and needs of individuals
Lack of incentives to work hard leads to unexpected results
Large bureaucracy for economic planning
Not flexible in dealing with minor day to day problems
People with new or unique ideas are stifled *

21. Succeeded by his son, Kim Jong-Un
Kim Jong-Il of North Korea (below)
Died in December 2011.
Succeeded by his son, Kim Jong-Un
A propaganda poster of the Soviet Union

22. Economic PhilosophersFree Market
Adam Smith
wrote
The Wealth of Nations
Add name here
Add name here

23. Market Economy
Markets allow buyers and sellers to come together in order to exchange goods and services
People and firms act in their own best interest to answer economic questions.

24. Market Economy
An economic system in which production and distribution questions are answered by prices and profits (supply and demand)
Most of the resources are owned by private citizens
Economic decisions are based on Free Enterprise
Competition between companies
Important economic questions are not answered by government but by individuals
Government does not tell a business what goods to produce or what price to charge

25. Market Economy
There are no truly pure Market economies, but the United States is close.

26. Market Economy Who decides what to produce?
Businesses base decisions on supply and demand and free enterprise (PRICE)
Who decides how to produce goods and services?
Businesses decide how to produce goods
For whom are the goods and services produced?
Consumers

27. In a truly free market economy, the government would not be involved at all
There would be no laws to protect workers form unfair bosses
There would be no rules to make sure that credit cards were properly protected
Many societies have chosen to have some rules to protect consumers, workers, and businesses (MIXED)
These rules reduce the freedoms that businesses have, but they also protect the workers and consumers

28. Weaknesses The primary weakness is deciding for whom to produce
The young, sick and old would have difficulty in a pure market environment
Markets sometimes fail
Competition
monopolies may develop
Resource mobility
resources are sometimes hindered from moving about
Availability of information
producers often have more information than do consumers, which gives them advantage

29. Mixed Economy There are no pure command or market economies.
Market + Command = Mixed
There are no pure command or market economies.
To some degree, all modern economies exhibit characteristics of both systems and are often referred to as mixed economies.
Most economies are closer to one type of economic system than another
Businesses own most resources and determine what and how to produce, but governments regulates certain industries

30. Mixed Economy Who decides what to produce?
businesses
Who decides how to produce goods and services?
Businesses, but the government regulates certain industries
Who are the goods and services produced for?
consumers

31. Mixed Economies there are no truly pure Market or Command economies
Most democratic countries fall in this category
there are no truly pure Market or Command economies
Examples: Brazil, Mexico, Canada, UK, US, Germany, Russia, Australia, etc.

32. Economy Continuum Command Market UK Australia North Korea Russia
Germany US
Hong Kong,
Singapore
Cuba
China

33. Which Economic System is Best?
The Market system has proven to be best at promoting the goals of growth, freedom, & efficiency
Citizens are free to own their own property and use it in the most efficient and profitable way
Command and Traditional systems sometimes offer more security, but are not nearly as strong in efficiency, growth, freedom, and environmental quality