unit 4 economic systems and 3 economic questions no question strip
DESCRIPTION
Econ SystemsTRANSCRIPT
Economic Economic SystemsSystems
Economic SystemsEconomic Systems
An An economic system economic system describes how a describes how a country’s economy is organizedcountry’s economy is organized Because of the problem of Because of the problem of scarcityscarcity, every , every
country needs a system to determine how to use country needs a system to determine how to use its productive resourcesits productive resources Scarcity = not having enough of somethingScarcity = not having enough of something
An economic system must answer 3 An economic system must answer 3 questions…questions…
The 3 Economic Questions (3E?’s)The 3 Economic Questions (3E?’s)
1.1. WHAT TO PRODUCE? WHAT TO PRODUCE? (What kinds of goods and (What kinds of goods and services should be produced?)services should be produced?)
2.2. HOW TO PRODUCE? HOW TO PRODUCE? (What productive resources are (What productive resources are used to produce goods and services?)used to produce goods and services?)
3.3. FOR WHOM TO PRODUCE? FOR WHOM TO PRODUCE? (Who gets to have the (Who gets to have the goods and services?goods and services?
Three Types of Economic Three Types of Economic Systems:Systems:
1. Traditional Economy1. Traditional Economy
2. Command Economy2. Command Economy
3. Market Economy3. Market Economy
* Most countries are… * Most countries are… Mixed EconomiesMixed Economies! ! (Market + Command)(Market + Command)
Traditional EconomyTraditional Economy An economic system in which economic An economic system in which economic
decisions are decisions are based on customs and beliefsbased on customs and beliefs People will make what they always made & People will make what they always made &
will do the same work their parents didwill do the same work their parents did Exchange of goods is done through Exchange of goods is done through
BarteringBartering: trading without using money: trading without using money
How a Traditional Economy How a Traditional Economy answers the 3E?’sanswers the 3E?’s
Who decides what to produce?Who decides what to produce? People People follow their customs and make what follow their customs and make what
their ancestors madetheir ancestors made
Who decides how to produce goods & Who decides how to produce goods & services?services? People People grow & make things the same way that grow & make things the same way that
their ancestors didtheir ancestors did
Who are the goods & services produced Who are the goods & services produced for?for? People in the People in the village who need themvillage who need them
Traditional Economy Traditional Economy
Examples:Examples: Villages in Africa and South America Villages in Africa and South America the Inuit tribes in Canadathe Inuit tribes in Canada the caste system in parts of rural Indiathe caste system in parts of rural India the Aborigines in Australiathe Aborigines in Australia
Positives of a Positives of a traditional economytraditional economy
PredictablePredictableKnowing what your job willKnowing what your job will
be beKnowing the way you willKnowing the way you will
live live
Problems with a Problems with a traditional economytraditional economy
Lack many resourcesLack many resourcesOnly produce enough to Only produce enough to live onlive on
Command SystemCommand System Government makes all economic decisions Government makes all economic decisions & &
owns most of the propertyowns most of the property Governmental planning groups determine such Governmental planning groups determine such
things as the prices of goods/services & the wages things as the prices of goods/services & the wages of workersof workers
This system has not been very successful & more This system has not been very successful & more and more countries are abandoning itand more countries are abandoning it
How a Command Economy How a Command Economy answers the 3E?’sanswers the 3E?’s
Who decides what to produce? Government makes all economic decisions
Who decides how to produce goods and services? Government decides how to make
goods/services
Who are the goods and services produced for? Whoever the government decides to give them
to
Command SystemCommand System
Countries with Countries with communist governments have communist governments have Command economiesCommand economies
Examples: Examples: There are no truly pure command There are no truly pure command economic systems, but close countries are: economic systems, but close countries are: North Korea, former Soviet Union, CubaNorth Korea, former Soviet Union, Cuba
*Germany and Russia have moved away from *Germany and Russia have moved away from having a Command economy since 1991. Now they having a Command economy since 1991. Now they have a Mixed economy.have a Mixed economy.
Positives of a Positives of a command economycommand economy
Because the government Because the government makes the decisions, people makes the decisions, people don’t have to worry about don’t have to worry about employment, housing, employment, housing, education, and healthcareeducation, and healthcare
Problems with a Problems with a command economycommand economy
Consumers get lowConsumers get low priority priority
Little freedom of choiceLittle freedom of choiceAll resources are ownedAll resources are owned
by the government by the government
Market EconomyMarket Economy An economic system in which production An economic system in which production
and distribution questions are answered by and distribution questions are answered by prices and profits (supply and demand)prices and profits (supply and demand)
Most of the resources are owned by private Most of the resources are owned by private citizenscitizens
Economic Economic decisions are based on decisions are based on Free Free EnterpriseEnterprise (competition between (competition between companies)companies) Important economic questions are not answered Important economic questions are not answered
by gov. but by individualsby gov. but by individuals Gov. does not tell a business what goods to Gov. does not tell a business what goods to
produce or what price to chargeproduce or what price to charge
How a Market Economy answers How a Market Economy answers the 3E?’sthe 3E?’s
Who decides what to produce? Businesses base decisions on supply and demand
and free enterprise (PRICE)
Who decides how to produce goods and services? Businesses decide how to produce goods
Who are the goods and services produced for? consumers
Market EconomyMarket Economy
There are There are no truly pure Market economiesno truly pure Market economies, , but the United States is close.but the United States is close.
In a truly free market economy, the In a truly free market economy, the government would not be involved at allgovernment would not be involved at all There would be There would be no laws to protect workers no laws to protect workers form form
unfair bossesunfair bosses There would be There would be no rulesno rules to make sure that to make sure that
credit cards were properly protectedcredit cards were properly protected
Many societies have chosen to have some Many societies have chosen to have some rules to protect consumers, workers, and rules to protect consumers, workers, and businesses (businesses (MIXEDMIXED)) These rules reduce the freedoms that businesses These rules reduce the freedoms that businesses
have, but they also protect the workers and have, but they also protect the workers and consumersconsumers
Positives of a Positives of a market economymarket economy
People can start their own People can start their own businessesbusinesses
People have choicePeople have choice
Problems with a Problems with a market economymarket economy
The desire for money may The desire for money may lead to poor quality of lead to poor quality of goods and servicesgoods and services
Business owners have to Business owners have to risk losing moneyrisk losing money
Mixed EconomyMixed Economy Market + Command = MixedMarket + Command = Mixed Businesses own most resources and determine Businesses own most resources and determine
what and how to produce, but the what and how to produce, but the government regulates certain industriesgovernment regulates certain industries
There are no pure command or market There are no pure command or market economies. economies. To some degree, all modern economies exhibit To some degree, all modern economies exhibit
characteristics of both systems and are often characteristics of both systems and are often referred to as mixed economies. referred to as mixed economies.
Most economies are closer to one type of economic Most economies are closer to one type of economic system than anothersystem than another
How a Mixed Economy answers How a Mixed Economy answers the 3E?’sthe 3E?’s
Who decides what to produce?Who decides what to produce? businessesbusinesses
Who decides how to produce goods and Who decides how to produce goods and services?services? Businesses, but the government regulates Businesses, but the government regulates
certain industriescertain industries
Who are the goods and services produced Who are the goods and services produced for?for? consumersconsumers
Mixed EconomiesMixed Economies
Most democratic countries fall in this Most democratic countries fall in this categorycategory (there are no truly pure Market or (there are no truly pure Market or Command economies).Command economies). Examples: Examples: Brazil, Mexico, Canada, UK, US, Brazil, Mexico, Canada, UK, US,
Germany, Russia, Australia, etc.Germany, Russia, Australia, etc.
Continuum of EconomiesContinuum of Economies
MostIndividual freedom
NoIndividual freedom
Pure Market
Pure Command
Most economies fall in between a pure market and a pure command economy on the continuum
Economy ContinuumEconomy Continuum
Command Market
Cuba Russia Germany USAustralia
UK
Which Economic System Is Best?Which Economic System Is Best?
Market system has proven to be best Market system has proven to be best because it promotes the goals of growth, because it promotes the goals of growth, freedom, & efficiencyfreedom, & efficiency Citizens are free to own their own property and Citizens are free to own their own property and
use it in the most efficient and profitable wayuse it in the most efficient and profitable way
Command and Traditional systems Command and Traditional systems sometimes offer more security, but are not sometimes offer more security, but are not nearly as strong in efficiency, growth, nearly as strong in efficiency, growth, freedom, and environmental qualityfreedom, and environmental quality