Bellringer – Get your notebook1. Think of some economic problems

with our modern economy

2. Look at Mankiw pages 10-11, add principles 6 & 7 to your notes

What usually makes people better off?

Economic Questions1. What to produce?

2. How much to produce?

3. How to produce it?

Answers decide what economic system you have

Households? Countries? Schools? Businesses?

Command EconomiesThis is the flag of the Union of Soviet Socialist Republics (USSR)

Why do you think they chose the hammer and sickle as their symbol?

Command Economies

Use the slips to estimate how much of each item you eat in 1 year.

(Think about how much you would need for 1 day, then multiply by 7 (days), then multiply by weeks (4 weeks per month), then by 12 (months per year)

Command Economies

Let’s experiment:Try and predict how much of each item you

should produce to feed the entire classroom for one year

Be careful, this food is perishable and if you produce too much the food will spoil.

Conversely, if you produce too little, people will starve and die.

If your committee is 100% correct, 100% on 1st Quiz

What you just did

• You tried to centrally plan the economy

• What happened to our village?

Command Economies

Based on the ideas of Karl Marx (1818-1883)

German Economist

Lived in England

First Sociologist

Industrial Revolution

Command Economy Philosophy

• Produce needs, not wants• Make needs as close to free as possible• Treat workers better (safe, high wages,

benefits)• No private property• Economic equality• Central planning of production• No new types of business

Benefits of economic system?Problems with economic system

Issues with Mankiw’s assumptions

USSR

• 1917-1991

• Tried experiment with communism– Communism =

command economy with restricted rights.

Free food“Bread Lines”

Lenningrad 1988

Command Economies today• Cuba

• North Korea• China (sort of, not

really)

• Laos

• Cambodia

• Communist parties around the world Communist rally in France, 2007

Contrast with Our Mixed Economy

3. How is a command economy different than our economy?

4. Why do most command economies fail in the long run (30-80 years)?

A Range of Economic systemsDepends on Economic Rights

Free Market Mixed Command

Hong Kong

Germany

France

Sweden USSRCubaNorth Korea

Dubai

Singapore

1. Who decides what to produce?

2. Who decides how much to produce?

3. Who decides how to produce it?

Profit Motive

• People want profits

• Different than command economy

• Adam Smith “invisible hand”

Mixed Economies• Modern countries have the government

help some• For example….

• Schools• Roads• Healthcare• Child care• Space Travel

Adam Smith• Father of Modern Economics

• Read the comic and write real or just 5 multiple choice questions on his main ideas (A-C only)

• Print pages 9-15