1. EQ: How do different types of economic systems seek to answer the three basic economic questions? Agenda Lecture: 3 Basic Economic Questions Activity and Discussion: Distributing the cookie Lecture: 3 major economic systems Writing activity

2. Economic system—organized way to produce and distribute goods and services Each must answer 3 basic economic questions What will be produced? Agricultural goods, hair cuts, massages, health care, toys, any government subsidies? How will it be produced? Advanced machinery, hard labor, any government regulations? For whom will it be produced? More money = more goods, distributed equally, social safety net

4. Market Command Traditional

5. Forces of SUPPLY and DEMAND answer the 3 basic Qs Self-interest motivates Competition regulates

6. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages” “Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention”

7. The good—flexible, individual freedom, variety of g/s, growth The bad—inequitable, market failures (monopolies, externalities, lack of public goods)

8. Aka planned economies or communist Government answers the 3 basic questions

9. “From each according to his abilities, to each according to his needs.” “Workers of the world unite; you have nothing to lose but your chains.” “The theory of Communism may be summed up in one sentence: Abolish all private property.”

10. The good—can change drastically and fast, may provide for basic needs The bad—lacks incentives for hard work, costly to plan, inflexible for small things

11. The past/tradition answers the 3 basic questions The good—life is predictable, closer to family and community The bad—no growth, low standard of living, discourage new ideas http://www.youtube.com/watch?v=gRdfX7ut8gw

12. ALL economies are MIXED. Some have more market characteristics Some more command http://www.heritage.org/index/ranking Market Command

13. What characteristics make us market, command, and traditional? Command—taxing, subsidies to certain businesses (farmers, green energy), government regulations: Health dept. inspections, gas mileage regulations, no alcohol until 21; safety net—food stamps, Medicaid, public housing Tradition—2011 $2.88 trillion increase in retail sales for Christmas

14. Do you think that the U.S. should adopt more market or command style policies? Reference the 3 basic economic questions. On which question(s) should the government interfere more or less? Due tomorrow.