I Economic Systems A Three basic systems B

I. Economic Systems A. Three basic systems B. Each has to respond to the realities of scarcity. C. Each has dealt with the 3 questions (what to produce, how to produce it, how to allocate resources and products) uniquely.

Traditional Economies

Who decides? 1. Tradition 2. Things are done the way they have always been done

Advantages 1. Sets economic roles for all members 2. Stable, predictable, continuous life

Disadvantages 1. Discourages new ideas and ways of doing things 2. Stagnation, lack of progress 3. Lower standards of living (often extreme poverty and disease)

Command Economies

Who decides? 1. The government 2. Bureaucrats (Administrators from agencies, departments, bureaus) 3. The economic planning committee

Advantages 1. Capable of dramatic change in a short time

2. Little uncertainty over choice & longevity of career

3. Many public services free (ed. health care etc)

Disadvantages 1. 2. 3. 4. 5. Doesn’t meet wants & needs of consumer Lacks effective incentives to get people to work, innovate Requires large bureaucracy, which consumes resources Has little flexibility to deal with small daytoday changes Innovation discouraged, no room for individuality

Market Economies

Who decides? o Consumers o Entrepreneurs/producers o The market o Supply and demand

Advantages 1. Able to adjust to change (gradually) 2. Individual freedom 3. Incredible variety of goods & services 4. High degree of consumer satisfaction

5. Decentralized decision making/lack of government interference

Class Activity 1. Rewrite the list of market advantages in the order of the advantage you feel is most important to the advantage you feel is least important in descending order. 2. Explain why the top three were chosen as the top three

3. Why is local control of economic decisions a positive feature of market economies? 4. Explain how the basic economic questions of what to produce, how to produce it and how to allocate resources are decided in a market system.

Disadvantages 1. Rewards only the productive 2. Uncertainty as a result of competition 3. Does not produce enough public services (defense, public ed) 4. Must guard against market failures (breakdown in competition)

Questions 1. 2. 3. How do you think incentives would differ between the last two systems (command market)? Imagine you work for a factory that produces several different types of bicycles. A county bureaucrat delivers a report detailing the numbers, prices, and styles of bikes the factory is to produce the upcoming season. Name the economic system this scenario reflects. What might be the problem with production amounts in the scenario above?

o Scenarios w/s o Matching Contest