ECONOMIC SYSTEMS DECISION MAKING WHAT IS AN ECONOMIC

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ECONOMIC SYSTEMS & DECISION MAKING

ECONOMIC SYSTEMS & DECISION MAKING

WHAT IS AN ECONOMIC SYSTEM? All countries use economic systems. An economic system is

WHAT IS AN ECONOMIC SYSTEM? All countries use economic systems. An economic system is simply an organized way for providing for the wants and needs of the people. Three major economic systems exist.

TRADITIONAL ECONOMIES: In a society with a traditional economy, the use of scarce resources

TRADITIONAL ECONOMIES: In a society with a traditional economy, the use of scarce resources and nearly all other economic activity stems from ritual, habit or custom. Individuals are not free to make decisions. Rather, their roles are defined by the customs of their elders and ancestors.

ADVANTAGES/DISADVAN TAGES: Advantages: Everyone knows what role to play Disadvantages: Tends to discourage new

ADVANTAGES/DISADVAN TAGES: Advantages: Everyone knows what role to play Disadvantages: Tends to discourage new ideas and ways of doing things Also, individual freedom is limited Lack of progress can lead to economic stagnation and a lowered standard of

COMMAND ECONOMY: In a command economy, a central authority makes decisions about WHAT, HOW

COMMAND ECONOMY: In a command economy, a central authority makes decisions about WHAT, HOW & FOR WHOM to produce. In a pure command economy, the government makes all of the major economic decisions.

ADVANTAGES/DISADVAN TAGES: Advantages: The main advantage is that it can change direction drastically Disadvantages:

ADVANTAGES/DISADVAN TAGES: Advantages: The main advantage is that it can change direction drastically Disadvantages: Ignores basic wants and needs People are more interested in filling a quota than producing a good product Requires a large decision-making

DISADVANTAGES CONTINUED The planning bureaucracy lacks the flexibility to deal with day-to-day problems Rewards

DISADVANTAGES CONTINUED The planning bureaucracy lacks the flexibility to deal with day-to-day problems Rewards for individual incentive are rare

MARKET ECONOMY: In a market economy, people make decisions in their own best interest.

MARKET ECONOMY: In a market economy, people make decisions in their own best interest. In economic terms, a market is an arrangement that allows buyers and sellers to come together to exchange goods and services.

CHARACTERISTICS: A market economy is characterized by a great deal of freedom. A market

CHARACTERISTICS: A market economy is characterized by a great deal of freedom. A market economy is often based on capitalism—an economic system where private citizens own the factors of production.

ADVANTAGES/DISADVAN TAGES: Advantages: High degree of individual freedom It adjusts gradually to change over

ADVANTAGES/DISADVAN TAGES: Advantages: High degree of individual freedom It adjusts gradually to change over time Small degree of government interference Decision-making is decentralized Variety of goods & services High degree of consumer satisfaction

DISADVANTAGES: Disadvantages: Does not provide for everyone May not provide enough basic goods &

DISADVANTAGES: Disadvantages: Does not provide for everyone May not provide enough basic goods & services High degree of uncertainly

MIXED ECONOMIES Most countries have mixed economies— systems that combine elements of all three

MIXED ECONOMIES Most countries have mixed economies— systems that combine elements of all three types. One advantage of a mixed economy is that it provides assistance for some people who might otherwise be left out. One disadvantage is higher costs for citizens to provide these services.

THE SPECTRUM OF MIXED ECONOMIES:

THE SPECTRUM OF MIXED ECONOMIES: