Economic Systems Key Vocabulary to Basic Economics Production
Economic Systems
Key Vocabulary to Basic Economics • Production- the making of goods • Distribution- passing out goods • Consumption- the use of goods • Goods- Products people use • Services- Things people do for others
Main Idea • Economies vary when it comes to government involvement. The relationship between government and the economy has been debated since America’s historical beginnings.
Essential Question m n r e v o g a d ? l y u o m h o s n o e l c o e r n t a a h n i • W y a l p ent
Economic Systems • 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 • An economic system must answer 3 basic questions…
1. What goods and services will be produced? 2. Who will be responsible for producing the goods and services? 3. How will the goods and services be distributed to the consumers? The way a society answers these questions determines its economic system.
Economic System üIt is the way resources (factors of production) are controlled within a nation and how they are distributed among the nation. üHow these factors of production are controlled and distributed defines the economic system
Economies of the World - 2008 According to this map, which are amongst the world’s wealthiest nations?
Command Economy Market Economy Types Traditional Economy Mixed Economy
Traditional Economy 1. Traditions and custom determine economic decisions 2. Economic activities are centered on family or tribe 3. Little or no technology, choices are determined by environment
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
Traditional Economy Examples: –Villages in Africa and South America; the Inuit tribes in Canada; the caste system in parts of rural India
Command Economy 1. Government makes all economic decisions 2. no competition 3. Purpose of business is to provide goods and services, not make a profit 4. Factories are solely concerned with quotas 5. Consumers have few choices 6. Government sets all prices of goods and services
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
Command System • Countries with communist governments have Command economies • Examples: Cuba, former Soviet Union, North Korea *Germany and Russia have moved away from having a Command economy since 1991. Now they have a Mixed economy.
Market Economy 1. Economic decisions are made by individuals 2. Competitions exist to make profits based on supply and demand 3. Individual freedom is valued and is important 4. Resources are owned by individuals 5. Government does NOT intervene
Market Economy • Who decides what to produce? Businesses base decisions on supply and demand free enterprise (PRICE) • Who decides how to produce goods and services? Businesses decide how to produce goods • Who are the goods and services produced for? Consumers
Market Economy There are no truly pure Market economies, but the U. S. is close.
Mixed Economy üA system featuring both command market economies üMost countries in the world are mixed economy
Mixed Economy • 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 the Government regulates certain industries
Mixed Economy • Who decides what to produce? Businesses • Who decides how to produce goods & services? Businesses, but the government regulates certain industries • Who are goods & services produced for? Consumers
Mixed Economy • Most democratic countries fall into this category (there are no truly pure Market or Command economies). • Examples: Brazil, Mexico, Canada, UK, etc.
Command vs. Market Economy Command Economy Market Economy Government is Government not involved. manages all Resources or most of distributed the resources based on and supply and industries demand
Advantages/ Disadvantages Command Economy Market Economy • High government • No government control • Equal distribution • Unequal distribution • No rich no poor • Increased gap • Communal between the rich and poor ownership • Private ownership
Market Economy Command Economy Capitalism Communism Socialism Mixed Economy Combination of both Command Market Economy
Economic Theories Chart Type Communism Socialism Capitalism Defintion Social Classes Business $ and variety of goods Role of Governme nt
Communism A. Creates a classless society- all are even B. all business is owned and controlled by the government (public, no private businesses) C. Little variety of goods D. Prices are determined by the government E. Ex – Vietnam, Cuba, U. S. S. R.
Socialism A. Believes the means of productions should be owned or regulated by the community as a whole B. Both and private AND public (gov’t) ownership of businesses C. Cheap products, high taxes, some variety The symbol of the Soviet Union featured the hammer and sickle symbols of laborers for centuries
Socialism D. Social class- Middle, strive for everyone to be the same status • Ex – China, Yugoslavia (parts of U. S. S. R. )
Capitalism A. A country’s trade and industry are controlled by private owners for profit B. Upper, middle and lower socioeconomic classes. C. Example – United States of America
Capitalisim • Good competition between business, leads to better prices • Variety of goods • Government does not have a role in business
Capitalism (continued) Laissez-Faire • A. The idea that the free market, through supply and demand, will regulate itself if government does not interfere • B. Government should be “hands off” with big business John D. Rockefeller founder of Standard Oil had a net worth of $668 Billion
Adam Smith • 18 th century Scottish economist • Published “The Wealth of Nations” in 1776 • Explained the workings of the free market within capitalist economies • Invisible hand of the market
Adam Smith (cont. ) • Laissez-faire - Government stays out of business practices “hands off” to let the market place determine production, consumption and distribution. • Individual freedom and choice emphasized.
Karl Marx • 19 th century German economist • Author of “Communist Manifesto” and “ Das Kapital” – Government should control economy and distribute goods and services to the people • Founder of revolutionary socialism and communism
Capitalism (continued) Supply & Demand A. The way a market regulates itself in a capitalist society B. In your Social Studies Journal add the following visualization. C. So how does this work?
Example of Economies… Pure Market Economy Mexico U. S. Sweden Russia Pure Command Economy Mainland North Korea China 37
Karl Marx Vs Adam Smith • While watching the • https: //www. youtub video, complete your e. com/watch? v=E 4 Yl notes sheet to Oyugato compare Karl Marx and Adam Smith
Capitalism (Market economy) Ownership • Individuals control means of production and • Market determines what goods will be control sold at what price Competiti on Standard of Living Socialism (mixed economy) Communism (Command economy) • Basic means of production owned and managed by government • Private ownership, with regulation, of businesses Government owns means of production Government determines what goods will be sold at what price • Competition Cooperation No competition, keeps prices stressed over lower quality low and quality competition goods high High standard of • high standard of Goal is living and economic living security Economic Security equality for • Individuals free to earn profits, but may High taxes everyone risk losses Free health care
Economic Scenarios Work with your table groups to demonstrate your understanding of economies. Analyze the following scenarios and then identify the type of economy that is being described in the statement.
Scenario #1 In this economy manufactures of automobiles control the number of vehicles produced each month in a effort to avoid surpluses that would minimize their profits.
Scenario #2 In this economy, the government produces it’s signature crab flavored soft drink and determines that it will be sold for $1. 25 in all stores.
Scenario #3 In this economy, investors can make millions investing in the construction of new homes, but it is just as likely that the value of these properties could decrease by 40% and they will lose millions of dollars.
Scenario #4 In this economy, unemployment is around 3% and although taxes are high, all members of the society have access to good schools and hospitals.
Scenario #5 In this economy, there are only 3 types of automobiles to choose from. They often break down and they are all painted a light brown color.
Scenario #6 In this economy, you are the owner of construction company, but all your materials to build houses is regulated by the government to ensure safe housing for all.
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