Economic Systems Unit 1 Ch 6 Market Economies

Economic Systems Unit 1 Ch. 6 Market Economies Mixed Economies Command (Planned) Economies

Curriculum 9. 2 Issues for Canadians: Economic Systems in Canada and the United States Students will demonstrate an understanding and appreciation of how economic decision making in Canada and the United States impacts quality of life, citizenship and identity.

9. 2. 1 appreciate the values underlying economic decision making in Canada and the United States 9. 2. 4 compare and contrast the principles and practices of market and mixed economies by exploring and reflecting upon the following questions and issues: • What are the principles of a market economy? • Why do governments intervene in a market economy? • Why is Canada viewed as having a mixed economy? • What is the role of the consumer in market and mixed economies? • To what extent do consumer actions reflect individual and collective identity? • How has the emergence of labour unions impacted market and mixed economies? • What are some similarities and differences in the way governments in Canada and the United States intervene in the market economies? • How do the economic systems of Canada and the United States differ in answering the basic economic question of scarcity?

Jungle, Game Reserve, or Zoo Activity

What is an economic system? the way a society organizes the production, distribution, and consumption of goods and services. Command (Planned) economy: gov’t, gov’t Mixed economy: some gov’t decisions mixed with market forces (supply and demand) Market economy: market forces (supply and demand)

Fundamental economic problem is SCARCITY. There are simply not enough resources to provide sufficient goods and services to satisfy the world's unlimited wants. Because of this scarcity, economists and governments try to answer three fundamental questions: WHAT TO PRODUCE? FOR WHOM TO PRODUCE? HOW TO PRODUCE?

What produces scarcity? Land: consists of all the materials found in the natural environment needed to produce goods and services, such as renewable resources (e. g. trees, raspberries) and non-renewable resources (e. g. oil, gold). Labour: consists of the physical and mental effort needed to produce goods and services. Capital: consists of the money that people own or borrow, used to purchase equipment, tools and other resources to produce goods and services.

Production and Distribution of Goods and Services Production is the creation of goods and services 
 Distribution is the way to get those goods and services to the consumers. What are three factors of production again? land, labour, and capital

What to produce? This decision is a matter for both government and the private sector. The government has to decide what goods and services to provide and how much of each to provide. More of one thing generally means less of another, so some difficult decisions arise here. The private sector also has to decide what to produce, but this will tend to be decided by the market. Firms will examine demand try to produce goods where there is the greatest level of demand. This question is then answered by the market forces of demand supply.

For whom to produce? This question is looking at the distribution of the goods and services we produce. Factors of production earn incomes. These incomes can be used to purchase goods and services. So the higher the level of income, the more goods and services can be demanded. In the market sector of the economy, this question is therefore decided by relative rewards to factors of production. Different criteria will be applied in the case of government provided services such as free state education.

How to produce? Firms will decide this on the basis of cost. Their aim is to make a profit - in fact the maximum profit possible. To help them do this, they need to produce as efficiently as possible. The more efficiently they produce, the lower the cost of production. So how much they use of each factor of production will depend on how much that factor costs and how productive it is. If labour is cheap, but nevertheless nearly as productive as more expensive machinery, then the firm may choose labour intensive production. If, however, machines are more productive per dollar spent, then they may choose capital intensive production. Economies approach these questions in different ways. Some may choose to have a large government sector (perhaps even total state control) whereas other may choose to leave things almost totally to the private sector and markets. This means that economists consider three different types of economy. We look at these in the next section - click on the right arrow at the top or bottom of the page to start this.

Spectrum Different ideas about how best to organize an economy result in different economic systems. You can put them on a continuum. see page 204.

Planned Economy (Russia) The government makes all the decisions about Characteristics how to solve scarcity. It owns and manages the resources are publicly owned. resources needed to produce things. It plans gov’t makes decisions on how to use what will be produced resources and decides how to use limited resources. individual consumers have little influence on economic decision making

Mixed Economy (Canada) combines private Characteristics ownership and gov’t some resources are control. publicly owned and some The level of gov’t are privately owned involvement fluctuates individuals and gov’t both depending what political make decisions about what to produce party is in power individual consumers and gov’t influence economic decision making

Market Economy (U. S. ) The choices of individuals solve scarcity. Private businesses own and manage resources They sell their products to consumers, who make their own decisions about what to buy. Businesses succeed if they produce what consumers want. Otherwise, they fail. The gov’t does not get involved. Characteristics Resources are privately owned. Individuals make decisions on how to use resources. Individual consumers drive economic decision making by choosing what to buy.

How do consumer choices “add up” in mixed and market economies? see pg 210 -211

Competition: rivalry among producers to sell products to consumers Competition is about producers striving to get consumers to buy their products. Many factors can affect competition: values of consumers decisions by government to become involved

Monopoly vs. Competition Case Study: Cell phone companies A monopoly happens when one producer controls all supply of a product or service.

http: //chillingcompetition. com/2009/10/31/anti-monopoly/

Worksheet: Which type of economy

Why do most countries (Canada, U. S. ) have a mixed economy?

What Do You Like on a Sundae? You and your partner discuss it. What toppings do you like on an ice cream sundae? Plain Vanilla? Or absolutely everything (and I mean everything)?

What Do You Like on a Sundae? Chances are, you were somewhere between plain and everything. When discussing economies, most countries are somewhere in between too. When a country is not completely a command economy and not completely a market economy, but somewhere in between, it is called a Mixed Economy.

Mixed Economy – “In Between”

“Pure” Command Economies If government controlled everything in the economy, then having a diversity of products would be very difficult. With no private businesses, there would be no competition, and products would never improve. The government could make the economy exploit the poor and benefit the rich.

“Pure” Market Economies If an economy was pure market, people could sell anything, even things that could hurt others. Businesses could make things cost as much as they wanted. In order to make products cheaper, they could skimp on safety and benefits for workers.

Most Countries Lie Somewhere in Between -However, they may be closer to one side than the other.

Writing Prompt With your partner, answer the following questions: What bad things could happen if an economy was pure market? (Be specific, at least 3 sentences) What bad things could happen if an economy was pure command? (Be specific, at least 3 sentences).

No real economies exist today that are at the extreme ends of a spectrum as all economies are a mixture of both to some extent. Shown below are some synonyms and values attached to these two extremes. Command/Planned Economy Government intervention in economy Government regulation Emphasizes group needs Communitarianism No private property Public enterprise Government owns means of production North Korea/Cuba Market Economy No government intervention in economy Consumer choice and control Emphasizes individual wants/needs Individualism Private property Private enterprise Individuals own means of production

Case Study: Canadian Economic History vs. U. S. Economic History

public good: what’s best for society as a whole The economies of Canada and the U. S. are similar, but they developed from different starting points. See pg 205

Founding Principle: “peace, order and good government”

Canada’s position on the economic spectrum (continuum) is not static. It shifts left and shifts right depending on the political party that forms the government.

What’s a Crown corporation? A Crown corporation is a company owned by Canada’s gov’t to provide products and services to Canadians. The reasons for their creation include: To promote essential services. To promote economic development. To support Canadian culture and identity. Economists say Canada has a mixed economy partly because of its Crown corporations. The US also has some, but not as many as Canada.

Examples of Crown corporations (pg. 207)

Founding Principle “life, liberty, and the pursuit of happiness. ”

The idea of individualism influences the economic system of the U. S. The U. S. is often said to have a market economy, because of its emphasis on the role of the individual, versus the government, in economic decision making. The position shift right to left, depending on the political party that forms the government.

Households are like miniature economies. Think of your house and how much money your family is allowed to spend. Like countries, families have to make and follow a budget to make sure the amount of money that is taken in is not less than the money that is put out into the economy.

Put yourselves in groups of 4. In these groups you must 
have a Dad, Mom, Sister, Brother. After paying all the bills and buying food for the month, your 
family has been left with $200. 00 to spend how they wish. 
You are meeting to decide how it is to be spent. Use the 
following questions below to help you decide how to spend 
the money. What issue does your family face when it comes to the money you 
have to spend? What items do you think are urgent? What could be put off until next month? How did you decide which items are more urgent that others?

example

Why do gov’ts get involved in market economics? Market economics relies on the decisions of individual consumers and producers. Sometimes gov’ts get involved to inform, protect or ensure good practices. They may intervene if they feel consumers are not being fairly treated. XL foods meat packing plant The B. C. gov’t started its own auto insurance program because it believed private insurers were making auto insurance too expensive. (pg. 214) What is happening in the U. S. ? Gov’ts often fund products and services they consider essential for the public good, such as education. What else might be considered a public good?

The Competition Act The objective of the Competition Act is to “Maintain and encourage competition in Canada in order to…provide consumers with competitive prices and product choices. ” In 2007, Canada’s gov’t launched an investigation, under the Competition Act, into price fixing among chocolate manufacturers.

How do economic decisions about scarcity, supply and demand, and competition affect individuals and groups? The Case of the Canadian Filmmaker: pgs. 219 -224 The Case of the Disappearing Jobs: pgs. 226 -228 The Case of the Workers’ Strike: pgs. 229 -235 ROLE PLAY ACTIVITY

What’s a Labour Union? Workers organize labour unions (an organization of workers that acts to protect workers’ rights and interests) to represent their needs to employers. Unions provide a way for workers to act as a group. Unions make collective bargaining (negotiating as a group) possible. By organizing workers into groups, unions can pressure employers about wages, working hours and workplace safety. Strikes (stopping work) are a form of pressure. During strikes, workers as a group refuse to do their jobs.

Unions Continued Today, unions exist in many parts of Canada’s economy, including transportation, education, health care, forestry, construction, manufacturing, public service and others. Because of unions, Canada has labour laws, such as the Canada Labour Code. Canada’s labour laws establish that workers have a right to form unions. They also describe bargaining procedures for unions and employers, and set standards for wages, hours, safety, holidays and other matters.

Assess the effectiveness of the Canadian and American Economies Economic Report Card Activity report card https: //www. cia. gov/library/publications/the-worldfactbook/geos/ca. html