Economics Unit 2 economic systems Essential Question What

Economics Unit 2 economic systems

Essential Question: • What are the advantages and disadvantages of the different economic systems used by countries to answer the 3 basic economic questions to meet a standard of living for its population?

Essential Terms/Concepts • Trade-Off • Opportunity Cost • Cost-Benefit Analysis • Standard of living • Traditional Economy • Command Economy • Market Economy • Mixed Economy • Economic freedom • Voluntary exchange • Private Property Rights • Profit Motive • Competition

Standard of Living- quality of life based on our needs and wants. What should everyone have? • For America-

Cost Benefit Analysis-Evaluate alternatives • Trade-Off- alternative choices when ever an economic decision is made. • Opportunity Cost- the cost of the next best alternative use of money, time, or resources.

Traditional • -An economic system where tradition and custom govern economic decisions • -Economic activities are usually centered toward the family, tribe, or ethnic group • -Resources are allocated based on inheritance • -Farming, hunting, and gathering are done largely in the same fashion as the generation before • -Choices are determined by environment • -Little or no use of technology

Traditional Economy- Not many left Advantages Disadvantages • Little uncertainty of how • Discourages new ideas to answer the 3 economic and new ways of doing questions. things • What? - Your family farms • Lack of progress and very you farm. They hunt to constricting hunt • lower standard of living • How? - Just like Dad • Whom? - determined by customs and traditions

Command • -The government or other central authority makes all economic decisions • -Individuals have little, if any, influence over economic functions • -Resources are owned by the government • -There is no competition; the purpose of business is to provide goods and services, not to make a profit • -Factories are concerned with quotas • -Consumers have few, if any, choices in the market place • -The government sets the prices of goods and services

Command “Communist "economies- Few left Cuba, North Korea Advantages Disadvantages • Can focus its factors of production quickly because all major decisions are centralized. • Typically many public services such as education and health-care available to the majority of the people. Quality varies • -Serves people collectively instead of individuals; focus on equality • -Distributes wealth among all of society • -Products produces fulfill needs • Not designed to meet the wants of consumers • No or little incentive to be productive because all receive similar wages. • Little or no innovation • -Often there is insufficient resource distribution, ie. Shortages and/or surpluses

What changes is Cuba making to their economy? • Have allowed trade with some foreign countries • Have allowed the use of the dollar • Have allowed small “State” controlled markets to open up.

What have been the positive outcomes in Cuba?

The United Emirates- Command Economy?

Market Economy • -Economic decisions are made by individuals competing to earn profits based on supply and demand • -Resources are owned by individuals • -Profit, not quotas, is the motive for increasing work • -Competition determines price and increases the quality of products • -Individual freedom is considered very important; individuals have freedom to make economic decisions • -Also called “capitalist” economy

Market Economies Advantages • -Prices determine by market forces (supply and demand); competition brings down prices • -Consumers can buy whatever they like in whatever amounts they want • -Adjusts to change easily • -Little government intervention • -Great variety of goods and services • -Capital flows to where Disadvantages • Does not always provide basic needs of everyone in society, which can lead people to slip into poverty • -May make it difficult for government to provide adequate social services • -There are occasionally market failures • -People can make choices which are harmful to themselves and to others

Mixed Economy • -Combines elements of pure market and command economies; Government and individuals share the economic decision making process • -Government guides and regulates production of goods and services • -Resources are owned by individuals • -Government serves to protect both producers and consumers from unfair policies and practices

Mixed economy Advantages Disadvantages • *See advantages of command market economic systems • -Can focuses on social welfare and political freedom, as well as individual liberties • *See disadvantages of command market economic systems • -May not lead to optimal use of resources • -Government intervention can hinder progress

Comparative Economic Systems • 1. How can the presence or Scarcity of natural resources and arable land affect a nation’s economy, regardless of the type of economic system? • 2. How can life expectancy and literacy rates affect the quality of a countries Human Resources in the economy? • 3. How can fertility rates affect the use of scarce resources?

• 4. How can GDP per capita and poverty rates indicate standards of living in each system? • 5. How can the size of the industrial/service sector and the agriculture employment rate indicate the level of industrialization? • 6. How can electricity, communication, and transportation facilities indicate the potential for industrial growth?

• 7. Considering the lack of natural resources, the labor problems, and the lack of capital and little industrialization of developing countries, how can developing countries develop? (Hint: Look at Economy - Overview for Chad). • 8. Now that you have studied the economic characteristics of these three countries, define the terms market-oriented, command, and developing economy in your own words. For each term, describe the specific characteristics of the countries you studied that would help to support your definition.