1. Economic Systems

2. All societies have an economy or economic system – an organized way of providing for the wants and needs of their people Three major kinds of economies exist: Traditional Command Market

3. Many of our actions spring from habit, custom, and tradition…

4. In a society with a Traditional Economy… The allocation of resources, and really all other economic activity, stems from ritual, habit, or custom

5. In a society with a traditional economy… There are many distinct advantages – Everyone knows which role they play – Little uncertainty over what to produce – Little uncertainty exists over how to produce – For whom to produce is dictated by tradition – Tradition dictates how people live their lives

6. In a society with a traditional economy… There are many distinct disadvantages – Traditional economies tend to discourage new ideas and new ways of doing things – Strict roles have the effect of punishing people who act differently – Lack of progress leads to a lower standard of living than other types of economies

7. Other societies have a command economy, where a central authority makes most of the economic decisions… In Soviet Russia…

8. – The State Planning Commission: Determined needs of the people Set goals for the economy Set production quotas Other societies have a command economy, where a central authority makes most of the economic decisions…

9. In a society with a command economy, there are distinct advantages… It can change direction drastically in a relatively short amount of time Many health and public services are available at little to no cost

10. In a society with a command economy, there are distinct disadvantages… Not designed to meet the needs of consumers, even though many basic needs are met The system does not provide an incentive for people to work Requires a large decision-making bureaucracy The system does not have the flexibility to deal with minor issues New and innovative ideas may be discouraged

11. In a market economy, people and firms act in their own best interests to answer the “what,” “how,” and “for whom” questions In a market economy, how are the three economic questions answered?

12. In a market economy, people’s decisions act as votes When consumers buy certain products, they are casting their dollar votes for the product Consumers therefore play a key role in deciding what is produced VS.

13. Examples?

14. There are distinct advantages in a market economy… Over time, the system can adjust to change Small degree of government intervention Decision making is decentralized A wide variety of goods available to the consumer High degree of consumer satisfaction High degree of individual freedom

15. There are distinct disadvantages in a market economy… 1.The market economy does not provide for the basic needs of everyone in society 2.The market economy does not provide enough of the services people value highly 3.There is a relatively high degree of uncertainty that workers and businesses face as the result of change in a market economy 4.Market economies can fail if three conditions aren’t met: A.Markets must be competitive and allow producers to compete with one another B.Resources must be free to move from one activity to another C.Consumers need access to adequate information so they can make wise choices

16. Economic Systems Which system is best for the citizens of a country? Why? Which system is the most stabile? Why? Which system provides for its citizens the best? Why?