1. Economic Systems

2. Scarcity Means There Is Not Enough For Everyone Government must step in to help allocate (distribute) resources 2 Copyright ACDC Leadership 2015

3. The 3 Major Production Questions What to produce? How to produce? For whom to produce? We will classify economic systems into categories, based on how each of them attempts to answer these three questions.

4. Traditional Economy The answers to the three major production questions are dictated by ritual, habit, or custom.

8. Examples of Traditional Economies Inuit tribe Some parts of South America Some parts of Africa Aboriginal tribes of Australia Some island societies

9. Traditional Economies Advantages? Disadvantages?

10. Command Economy The answers to the three major production questions are given by some strong central authority (i.e. the government) Public ownership of resources Communism – an economic system in which all factors of production are the property of the state.

11. Examples of Command Economies Cuba

12. Examples of Command Economies North Korea

13. Command Economies StrengthsWeaknesses

14. Market Economy Businesses and individuals act in their own best interest to answer the three major production questions. Private ownership of resources Capitalism – an economic system in which individuals and businesses compete, with a minimum of government interference “Laissez-Faire”

15. Market Economies StrengthsWeaknesses

16. Mixed Economies Mixed-Market Socialism Economies in Transition

17. Total Government Control No Government Control CommunismSocialismMixed-Market Capitalism Little Economic Freedom Total Economic Freedom

18. RankCountryOverallChange 1Hong Kong90.0+0.3 2Singapore87.1-0.2 3Australia82.6+0.4 4Ireland82.2-0.3 5New Zealand82.0+1.2 6United States80.7-0.3 7Canada80.5+0.3 8Denmark80.0+0.4 9Switzerland79.4-0.1 10United Kingdom79.0-0.5 2009 Index of Economic Freedom: http://www.heritage.org/Index/ The Top 10

19. 2014 Index of Economic Freedom:

20. Bottom 7

21. Role Players in the Mixed-Market Economy Consumers Producers Government  Consumer  Producer  Protector  Regulator  Provider

22. 7 Economic & Social Goals of Capitalism 1. Economic Freedom 2. Economic Equality 3. Economic Security 4. Economic Growth 5. Economic Efficiency 6. Price Stability 7. Full Employment

23. Capitalism Communism

24. Capitalism Communism

25. CharacteristicCapitalismCommunism Primary Economic Goal Basis of Economy Resource Allocation Government Planning Ownership of F.O.P. Motivation Economic Freedom Economic Equality Competition Cooperation / Collectivization Supply & Demand Government Planning Private Property Public Property Profit Motive Patriotism: The Good of Community

26. “From each according to his ability, to each according to his needs!” Karl Marx Critique of the Gotha Programme, 1875

27. Communism Communism: How/Why does it rise? How/Why does it fall?

28. Why Doesn’t It Work? Incentive Problem  Average Test Scores Example Coordination Problem In one word, why doesn’t it work? GREED

29. “As for me, I am not a Marxist.” Karl Marx

30. Copyright ACDC Leadership 2015 30

31. When CAN It Work?

32. Characteristics of Free Enterprise Capitalism Economic Freedom Voluntary Exchange  Consumer Sovereignty: The consumer drives the market – DOLLAR VOTES  “The customer is always right!” Private Property Rights  The Tragedy of the Commons Profit Motive/Self-interest Competition  Markets and Prices  Specialization/Division of Labor

33. Market System Questions What will be produced?  consumer sovereignty  dollar votes How will goods be produced?  technology  resource cost 2-33

34. Market System Questions Who gets the output?  willingness to pay How is change accommodated?  self-interest How is progress promoted?  technological advance  capital accumulation 2-34

35. Adam Smith “Wealth of Nations”  1776 Invisible hand  Meat  Bread  Candles  How do we decide to provide these?

36. The Invisible Hand Virtues of the market system  Efficiency  Incentives  Freedom 2-36