allocation & economic systems

ALLOCATIONPREPARED BY SUE QUIRANTE

FOR AP 9 & 10 RTPM-DSHS

USAGE NOTES• These are slides I use for my lectures on allocation and economic

systems, a first quarter topic in Economics under the K to 12 curriculum in the Philippines.

• All copyrighted materials were lifted from their respective sources under the spirit of fair use. As such, I am uploading these slides in the interest of helping out other public school teachers like me. This material should not be used for any commercial purpose.

• Last modified: October 9, 2016

Scarcity“ There isn’t enough to go around.”~John Watson Howe

Alokasyon

mekanismo ng pamamahagi ng pinagkukunang-yaman,

produkto at serbisyo

Four Basic Economic Questions

1 What to produce?2 How to produce it?3 How much to produce?4 Who gets what is produced?

Four Economic SystemsTraditional Economy

Command EconomyMarket Economy

Mixed Economy

ECONOMIC SYSTEMconsists of a matrix of:

1. social institutions (law, political institutions, religion, etc)

2. agents (individuals or actors)3. organizations (corporations, unions, charitable

org, not-for-profit firms, etc)4. society (includes principles, beliefs, values)

ECONOMIC SYSTEM

• function: coordinate the activities of agents in the processes of provisioning and allocation• most economies are a mixture that includes

elements from all 3 types

Traditional Economy

The Inuit tribes of Alaska

TRADITIONAL ECONOMY• evolved over time (traditions & custom form gradually)• rate of change is slow• rules of trade not apparent as economy but as moral system• medieval European rules against charging interest on

loans—considered a sin in the Christian faith of the time

EXAMPLES• pre-modern Europe• pre-colonial tribes in the Americas,

Australia, Africa, and Pacific islands

Command Economy

Command Economy• an overseeing government decides how resources are

distributed amongst individuals within the system• trade and individual choice at the consumer and worker

level is minimal or, in some cases, entirely non-existent• ideal: efficiency, equality

Command Economy• equality: by making sure to allot everyone an

equal amount of wealth• in reality, the distributors of wealth at the

government level often hoarded wealth for themselves

Market Economy• individuals meet in markets and decide what economic

decisions they want to make for themselves• ideal : efficiency, freedom• emphasis on trade• exchange of goods and services

Mixed Economy

• usually allow most people to decide how to obtain and spend capital, what work they would like to pursue, how much they would like to save, and what lifestyle they want to enjoy

Mixed Economy• at the same time, a command-

based system from the government places restrictions on making choices and encourages market participants to move towards one decision over another

Synthesize What You Have Learned

Who makes this decision? TRADITIONAL COMMAND MARKET MIXEDWhat to produce?How to produce?How much to produce?Who gets what is produced?Dis/Advantage

•Whether a society emphasizes the use of exchange, reciprocity or eminent domain to allocate resources, “Any economic system requires a set of rules, an ideology to justify them, and a conscience in the individual which makes him strive to carry them out.” (Robinson, p13)

formal - lawinformal - values, morality

system of ideas, ideals, beliefs, principles, ethics, moralsthrough enculturation:

gradual acquisition of the characteristics and norms of a culture or group by a person, another culture, etc.

MARKET COMMAND MIXEDownership of means of production

owned privately owned by state owned both by state and individuals

resource allocation

price mechanism, supply/demand

rationing both

taxes low high hightrade free trade is

emphasisfree trade is not the focus

none

stability business fluctuations stable

predetermined, less flexible, less efficient

social benefit

TRY IT• State planners in Country A met to decide what the country should focus

on producing. After much deliberation, they decided it would be in the country’s best interest to use their limited resources to produce automobiles instead of other consumer goods, such as electronics or textiles. The state planners passed their decision down to factories, and allocated to them raw materials, workers, and other resources needed to produce automobiles. Factories were then told how much they should produce with these resources and who the final products should be shipped to.

TRY IT• State planners in Country A met to decide what the country should focus

on producing. After much deliberation, they decided it would be in the country’s best interest to use their limited resources to produce automobiles instead of other consumer goods, such as electronics or textiles. The state planners passed their decision down to factories, and allocated to them raw materials, workers, and other resources needed to produce automobiles. Factories were then told how much they should produce with these resources and who the final products should be shipped to.

TRY IT• In Country B, business owners decide what to produce, how much to

produce, and who to produce for. The CEO of Tarheelia Audio, one of the leading audio equipment producers in the country, recently decided to increase production levels of the company’s newest MP3 player model, and at the same time decrease production levels of their most popular CD player. The reason for the emphasis on MP3 players is that demand for CD players has decreased dramatically as MP3 technology has taken over the market. Simply put, there is more profit to be made in the MP3market.

TRY IT• In Country B, business owners decide what to produce, how much to

produce, and who to produce for. The CEO of Tarheelia Audio, one of the leading audio equipment producers in the country, recently decided to increase production levels of the company’s newest MP3 player model, and at the same time decrease production levels of their most popular CD player. The reason for the emphasis on MP3 players is that demand for CD players has decreased dramatically as MP3 technology has taken over the market. Simply put, there is more profit to be made in the MP3 market.

TRY IT• In Country C, people rarely engage in market transactions. For

the most part, they do not need to. Families grow their own vegetables and raise their own animals or hunt to get meat. Certain times get tough for people in Country C like when the winters are particularly cold or animals change their migration patterns. For this reason, it is important that families stock up in “good times” and develop relationships with neighbors with whom they can share or trade.

TRY IT• In Country C, people rarely engage in market transactions. For

the most part, they do not need to. Families grow their own vegetables and raise their own animals or hunt to get meat. Certain times get tough for people in Country C like when the winters are particularly cold or animals change their migration patterns. For this reason, it is important that families stock up in “good times” and develop relationships with neighbors with whom they can share or trade.

TRY IT• In Country D, business owners make most economic decisions. As

long as they abide by fair trade policies, they can decide what to produce, how to produce, and for whom to produce without government intervention. These decisions are made by business owners based on what happens in the market. For example, a computer manufacturer recently developed a new video gaming system, but decided to wait until closer to the holidays to release the system to the public because it believed anticipation among consumers would allow the company to charge a higher price for the system

TRY IT• In Country D, business owners make most economic decisions. As

long as they abide by fair trade policies, they can decide what to produce, how to produce, and for whom to produce without government intervention. These decisions are made by business owners based on what happens in the market. For example, a computer manufacturer recently developed a new video gaming system, but decided to wait until closer to the holidays to release the system to the public because it believed anticipation among consumers would allow the company to charge a higher price for the system

TRY ITThe implementation of the National Nutrition Council in partnership with the DepEd of this year’s Nutrition Month with the theme “First 1000 days ni baby, pahalagahan para sa malusog na kinabukasan” exhibits a feature of what type of economic system?

• Source: • Philippine Information Agency• http://news.pia.gov.ph/article/view/

1221467334387/nutrition-month-focus-first-1000-days-of-a-baby

1. What keeps markets honest?

2. What is the invisible hand?

Write one question about something that was confusing for you or something you want to know more about.

MARKET

a medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange

Jean Baptiste Colbert& Mercantilism

• main economic system used during 16-18th century (age of Imperialism)• main goal was to increase a nation's wealth

by imposing government regulation on all of the nation's commercial interests• belief that national strength could be

maximized by limiting imports via tariffs and maximizing exports

Laissez Faire• an economic theory from

the 18th century that is strongly opposed to any government intervention in business affairs

"let it be economics”French for "leave alone" Francois

Quesnay

“While theory states that a pure market economy uses resources and labor most efficiently, in reality, democracies have additional goals besides efficiency. ” ~Investopedia

“These may include minimum levels of safety, education, opportunity or health. To accomplish these goals, they introduce some centrally planned rules and regulations to guide the pure market forces.” ~Investopedia

private ownership

SOCIALISM

CAPITALISM

public schools, public works

TRY IT YOURSELF• Synthesize your understanding of the four economic systems

into a three-minute skit showing scenarios from each type.• Make sure to demonstrate characteristics particular/unique

to each type.• Also demonstrate advantages and disadvantages.• This will be peer-graded.

SKIT PEER GRADINGCRITERIA 1 2 3 4 5 6

The four economic systems were present.I was able to easily distinguish the economic systems they demonstrated.Dis/advantages of each economic system were showed clearly.The skit was informative and entertaining.The group was creative in using readily available materials in the classroom.

1 – Strongly Disagree2 – Disagree3 – Agree4 – Strongly Agree

What about…

Capitalism, Socialism, and

Communism?

CAVEAT/WARNING

•Bite-size definitions are incomplete; these concepts are complex

Capitalism vs Market Economy

Capitalisman economic system organized around the principles of private property, freedom of exchange, and limited government intervention

CapitalismThe means for producing and distributing goods (the land, factories, technology, transport system etc) are owned by a small minority of people. We refer to this group of people as the capitalist class. The majority of people must sell their ability to work in return for a wage or salary (working class). World Socialist Movement

Capitalismessential feature:• private ownership of the means of

production (capital)

• individual economic freedom

Market Economymarket forces : collective effect of all the decisions made by individual participants in the economy - such as consumers and businesses - according to their free will

Market Economyessential feature : free competition

Differencein capitalism, capital owners have a lot of dominance over the means of production and as such may yield unfair influence

Differencecapitalists in pursuing profit maximization may aim to reduce and/or eliminate competition

DifferenceThe Capitalist Fish Pond

ISSUES IN A CAPITALIST WORLD

Socialism vs Communism

Socialismbased on public or collective ownership of the means of production; directly (collective ownership) or through government

Socialismaim: narrow the gap between rich and poor• government has a responsibility to

redistribute wealth to make society more fair and just

SocialismPRIVATE PROPERTY

1)consumer goods2)means of production

SOCIALISMAdvantages Criticism of Capitalism Capitalism’s Criticism

of Socialism

creates equalityexploits workers for the benefit of small, wealthy class

ignores human nature and role of incentives

economic security

Communismrefers to community ownership of property, with end goal being complete social equality;

ideal : classless society

CommunismPRIVATE PROPERTY

1)consumer goods2)means of production

From each according to his ability, to each according to his

deeds.SOCIALISM

From each according to his ability, to each according to his

needs.COMMUNISM

SOCIALISM COMMUNISMNo private ownership of the means of production No private property at all.

Narrow gap between rich and poor. Eliminate class.

Capitalist state can be used to transition to socialism.

Overthrow the capitalist state through violent revolution.

What is the relevance of

knowing about economic systems?

Put your critical thinking hat on! Let’s take a look

at some propaganda.

THIS POSTER IS BIASED IN FAVOR OF WHICH ECONOMIC SYSTEM?

What the image does not say:

In a free market economy, “artists” who are really talented/exceptional will likely be successful. Those who are not as skilled will be forced to change professions as they will be unable to compete with really good artists. Competition, in this case, ensures quality.

THIS POSTER IS BIASED AGAINST WHICH ECONOMIC SYSTEM?

What the image does not say:

Obamacare is not the first socialist institution in the USA. Public schools, the military, the fire department, national parks – these are only some of the many socialist-oriented programs already existing in the United States.

Goi

ng b

eyon

d th

e ba

sics

INTERESTED?

FURTHER READING

favors capitalism favors socialism