economic systems: goals methods developed by different societies as per their individual goals and...
Post on 04-Jan-2016
213 Views
Preview:
TRANSCRIPT
Economic Systems: Economic Systems: GoalsGoals
Methods developed by different
societies as per their individual
goals and needs.
Economic Systems…
Definition:
It is a system through which each economy decides how to allocate the national resources, production, and consumption within the Economy.
Types of Economic Systems
There are four types of Economic Systems.
1- Traditional Economic System 2- Command (Planned) Economic System 3- Market Economic System 4- Mixed Economic System
Every society must ask 3 Key Questions…
• 1) What goods and services should be produced?
• 2) How should these goods and services be produced?
• 3) Who will consume these goods and services?
• The way a country answers these questions determines its economic system.
The Three Questions
• We will see that every Economy can be classified to which of the four forms of Economic Systems they belong by answering these three simple Questions.
• What?• How?• Who?
1.) What to Produce?
This question attempts to determine which sort of goods and Services will be produced in an economy.
• What are society’s needs and wants?•What resources should be used?•What are the opportunity costs? •Should we be manufacturing more necessities or Luxuries?
2) HOW to produce:
• What resources to be used and/or developed to produce goods
• Land + labor + capital = product• Should we rely on Human Resources such as
Labor? • Or should we use more Capital instead such as
machines?• How much quantity should we employ of each
of them? • Training required to produce and/or serve
Once we have decided what to produce, we have to decide how we should produce these goods and services.
3) For whom to Produce?
• This question relates to the final market of the goods and services we are going to produce.
• Whom are we going to sell these goods and services?
• Should we produce for rich people or the middle class?
• Should we produce for youth or the elderly?
• Distribution of products • Societies must decide how to distribute? the available goods and services
• This question is answered by how societies decide to distribute income:
• They do this with
• Factor Payments: Factor Payments: • The income people receive for supplying
factors of production • (land, labor, capital, and entrepreneurship)
• Ex. 1.) Landowners receive rent
• 2.) Workers receive wages,
• 3.) Those who lend money to build factories or buy machinery receive payments called?
• Interest
• 4.) Entrepreneurs earn profits if their enterprises succeed
• How much?• How much should we pay the owners of
the factors of production?• How do we decide how much a
particular piece of land is worth?• How much should Ms. Morse really
earn?• How much should your doctor earn?• How much should Stephen Curry earn? • Or, what should the interest rate be?
Social Values and Goals! Social Values and Goals! • This is the heart of the differences
between economic systems today.
Each society answers the questions of distribution
based on its unique combination of social
values and goals
Goals and Values
• 1.) Economic Efficiency (production distribution)• Maximizing output of goods and services from the resources available
• 2.) Economic Freedom patriotism• Allowing individuals to make economic choices about earning income, owning
property, and purchasing goods and services.
• 3.) Economic Equality (production = access ?)• Dividing resources in a way that is considered fair
• 4.) Economic Security & Predictability • Assuring people that goods and services will be available: providing aid for
retirement, in difficult times, injuries, layoffs, natural disasters safety net
5.) Economic Growth & InnovationA nation’s economy must grow for a nation to improve its standard of living (economic prosperity)
•Additional Goals
environmental
full employmentmedical care
Prioritize:No matter how a nation prioritizes its goals, one fact remains the same:Achieving any economic goal comes only with some kinds of economic trade-off
Economies and Values
ECONOMIC SYSTEMS
Traditional Economy Market Economy Mixed EconomyCentral or Command
Economy
Oldest formOf economic
Systems
Bartering
AgriculturalAnd resource
Based
Immediateneeds
As in WesternEurope
The market &consumer
DeterminesSupply &Demand
Central Gov’tDeterminesWants &
Needs of the Consumer
Focus on In-dustrial goodsAnd little on Consumerdemands
In the US,Both Market&
CommandSystems are
used.
Market forcesControl mostConsumer
Goods
Gov’t directsIndustry in
Need areas
top related