types of government basic economic unit part ii. types of economic systems
Post on 03-Jan-2016
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All economies are actually mixed. What determines whether an economy is considered market or command depends on the level of
Government involvement.
Centrally Planned vs. Free Market
North Korea, United States, Cuba, Germany, China
More Gov. Less Gov.
Socialist or Market?
“Proposed increase in minimum wage” “Oil prices soar because of Middle East
unrest” “Stock prices plummet due to concerns
over European markets” “FDA recalls Butterball Turkeys Over
Salmonella concerns” “Recent freeze could lead to increase in
cost of strawberries”
What can we use to measure the size of the economy?
GDPThe Dollar value of all FINAL goods and services produced
in a nation in a year.
What is productivity?
The amount of output that can be produced by a set amount of resources in a given period of time
Increasing Productivity
Specialization = when people, businesses or countries focus on what they do best
Division of Labor = breaking down of a job into small parts performed by different workers
Investing in Human Capital = spending to improve worker skills
What do these practices create between individuals, communities and nations?
Economic Interdependence
dependence between people for goods and services
What did Smith mean by Laissez-faire economics?
“To let alone” Government’s
only economic role is to ensure competition
The Invisible Hand
Belief that individuals left on their own would work for own self-interest
Would be guided by “invisible hand” to use resources efficiently (Government needs to do little)
Invisible Hand
Self-Interest + Competition=
Higher Quality + Lower Prices=
Most Efficient Use of Resources
Characteristics of Capitalism
Free Enterprise – Competition with little government interference
Freedom of Choice – individuals can choose what work to do and what to buy (creates Consumer Sovereignty in the market)
Private Property – right to own and use our property how we choose within certain legal limits. Provides incentives to take care of and invest.
Profit Incentive – (Self-Interest) the driving force of capitalism, the ability to accumulate wealth
Competition – (the regulator) the struggle between buyers and sellers to get the best products at the best prices
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