Economic Systems Traditional Command Market Mixed Economic Systems

Economic Systems Traditional - Command – Market - Mixed

Economic Systems - Traditional An economic system in which people produce only what they must have in order to exist. Oldest and simplest form of an economic system. • Tribal – Family Units • Rely on habit, tradition, or ritual. (work divided among gender lines)

Economic Systems Two General Economic Systems: • Market Economy An economic system in which the questions of what, how, and for whom goods will be produced are answered by individuals and businesses in the marketplace. • Command Economy (Centrally Planned) An economic system in which all or many of the means of production and distribution are owned and controlled by the government.

Economic Systems NOTE: No country has a pure Market or pure Command Economy…. ALL countries are mixed. So, where does any given country fall on the continuum? Command Market

Economic Systems How do we determine, or measure, the type of economic system a country follows? Three Questions are answered: • What goods and services are produced? • How should these be produced? • For Whom should these be produced?

Economic Systems Market Economy

Economic Systems - Market 1 st Question • What goods should be produced? Consumers decide Private businesses emerge to meet consumer’s wants and needs. SYSTEM T N A ADV M : E AG T E K AR

Economic Systems - Market 2 nd Question • How should goods be produced? M E T S SY Businesses decide. T E K R A M : E G A T N A hiring, wages, and production V Decisions on D M A E T S Y Companies S methods, all left up to owners. T E K R Aas they must compete M : become more efficient E G A T N A to become. AD successful. V IS D Employment not guaranteed as owners look to create efficiencies (unemployment volatile)

Economic Systems - Market 3 rd Question • For Whom should goods be produced? For whomever can afford it. M E T S SY T E K R A M If you do not have : money you cannot buy E G A T N M ATOO BAD. E V the good. T D A YS S T E K R Agoods or services. M Nobody is entitled to : E G A T N A To be able. Ato V buy goods, people are D DIS motivated to work and earn money.

Economic Systems Command Economy

Economic Systems - Command 1 st Question • What goods should be produced? Government decides. M E T SYS Government chooses. Mwhat AND is important M O C : to spend their. AGlimited resources on. E T N A V D EX: military vs. furniture. A DIS Thus, shortages will exist for goods that aren’t deemed important by government

Economic Systems - Command 2 nd Question • How should goods be produced? D N A MM M E T S SY CO : Government decides. E AG T N A DV DISA Govt owns the means of production. They employ workers and control industry They set wages and determine schedules. No bargaining or competition.

Economic Systems - Command 3 rd Question • For Whom should goods be produced? M Government decides who gets what and E T S Y S D how much. N A M M O C E: G A T N A V D Every. Done has basic needs met. A S I M E T S Limits Economic Freedom: ND SY A M Govt runs housing (says M where to live), O C : E G A provides food (rations what to eat), T N A V D A (determines where to work) provides jobs

Economic Systems (REVIEW) Two General Economic Systems: • Market Economy • Command Economy (Centrally Planned) NOTE: No country has a pure Market or pure Command Economy…. all are mixed. Command Market

Economic Systems - MIXED All economic systems are Mixed …but to what degree? Three Basic Models (philosophies) • Capitalist Model • Socialist Model • Communist Model Command Communist Market Socialist Capitalist

Economic Systems Capitalism An economic system that depends on honest, healthy competition between businesses

Economic Models – Capitalism • Based on the philosophies of economist Adam Smith • He professes that capitalism is based on “self-interest” and “competition”

ith’s Adam Sm “THE INVISIBLE HAND”

ith’s Adam Sm “THE INVISIBLE HAND” SEL INTE F RES T People (businessmen) are interested in getting money for themselves

In a free market system, how do businessmen get money? They have to produce a product that people will want to VOLUNTARILY give them money for.

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ith’s Adam Sm “THE INVISIBLE HAND” IO T I T E N P M O C The struggle among producers for the dollars of consumers

What happens when businesses compete? • LOWER PRICES

What happens when businesses compete? • LOWER PRICES • BETTER QUALITY

What happens when businesses compete? • LOWER PRICES • BETTER QUALITY • NEW PRODUCTS

In a free market, competition is the regulating force as long as businesses are allowed to compete, prices should be low, quality should be high, and new technologies should advance.

’s ith Adam Sm “THE INVISIBLE HAND” SEL INTE F RES T R G “ S I D E E ” D O O G N IO T I T E P M O C SELF-INTEREST and COMPETITION work together to regulate the market (an economy)

Economic Models – Capitalism Self-Interest is the motivating force in the free market. (people are interested in making money !) • To make money you must M produce a E T S Y product that people. Ewill S voluntarily give T K R A you money for. E: M G A T N A V AD • Because owners want to make a lot of money they have an incentive to produce what consumers want.

Economic Model - Capitalism Competition exists in capitalism as M E T businesses struggle to gain those S Y S T E K R voluntary dollars. E: from MA consumers. G A T N A V AD As businesses compete for profit, the market is “regulated” as companies have incentive to lower prices and provide new and better products.

Economic Systems Socialism A modified command economic system in which government owns the basic means of production and allows private ownership of businesses as well

Economic Model - Socialism • Government attempts to reduce the M E T S Y S Dand poor. difference between rich N A M M CO– reduce poverty) : (Classless system E AG T N A ADV M E T S Y S D MAN • Key industries run by government to M O C : E Gand prevent mass A control prices T N A V AD unemployment (ex. energy, steel, communication, health care, agriculture)

Economic Model - Socialism also believes that all people M E T Sfor should have services provided Y S D N A M them…health care, schooling, pensions. M O : C E G A T N (Cradle to grave coverage) DVA DISA M E T SYS D N A M make money are To do this, those who M O C : E G to “redistribute wealth” and A taxed heavily T N A V AD all with services. provide Businesses are highly regulated (vacations, hours, minimum wages, etc)

Economic Systems Communist Model a command economic system in which the government CONTROLS the economic system and does NOT allow private ownership of the means of production and distribution

Economic Model - Communism Based on the philosophies of Karl Marx M E T S Marx argued that all the. ETprofit created by SY K R A the labor of workers M ended up in the : E G A T Ncapitalists (owners) hands of the A V D A S I D He argued that the inevitable result of capitalism was the exploitation of workers and an unfair distribution of wealth. (large gap between rich and poor)

Economic Model - Communism • Government runs everything. • All people are assigned jobs / school • Housing assigned according to need • Medical care is free • Government determines products

Economic Model - Communism This system provides no incentive to work harder to earn more money as the government dictates what you make and were you work. M E T S SY D N A M M O C is no competition to System fails as there : E G A T N improve technology or efficiencies. A V D DISA Privatization ultimately happens (businesses eventually allowed to be privately owned…not govt owned)

Economic Systems - MIXED Communism Socialism Command Hon g. K ong Uni Canted S ada tate s Fra nce Ger ma ny Jap an Rus Chi sia na a Cub Nor th K ore a All economic systems are MIXED. Capitalism Market Economic Freedom Index