To what extend do different
economic systems affect
quality of life?
Chapter 6
STOP AND THINK?
We are caught in an inescapable network of
mutuality, tied in a single garment of destiny.
Whatever affects one directly, affects all directly
Martin Luther King Jr.
Turn and Talk –
Do you believe this to be true or untrue, why?
Provide an example(s) to support your decision?
WARNING!
IDEAL SYSTEMS????
When referring to the Economics Systems in
this unit, we are discussing theories and ideal
situation. No country actually has a pure
model as seen by recent current events.
In 2009, Canada and the United States
both experienced a major recession.
Canada, he mixed economy, opted for
months of no-government regulations,
(Shift Right) almost resulting in the fall of
the government while the USA created a
multi-billion dollar Stimulus Package.
(Shift Left)
Economics, Systems and QOL
Economics is the study of the production,
distribution and consumption of goods and
services.
Economic systems are the way a society
organizes the production, distribution, and
consumption of goods and services.
Quality of Life is measure of personal and
collective well being
Microeconomics vs. Macroeconomics
Microeconomics Macroeconomics
What is it?
Is a branch of economics that
studies how individuals,
households and firms make
decisions to allocate limited
resources, typically in markets
where goods or services are
being bought and sold.
Bade, Robin; Michael Parkin (2001). Foundations of
Microeconomics. Addison Wesley Paperback
What are
examples of it
in our lives?
What will I buy? - Market
behavior of individual
consumers
Involves the "sum total of
economic activity, dealing
with the issues of growth,
inflation and unemployment,
and with national economic
policies relating to these
issues“
Colander, David. Microeconomics. McGraw-Hill
Paperback, 7th Edition: 2008.
Inflation, interest rate,
employment &
unemployment
Scarcity
• The basic economic problem that rises because
people have unlimited wants but resources are
limited. These resources are: land (materials),
labor (workforce) and capital (money).
• People must make choices between different
items because the resources necessary to fulfill
their wants are limited. These decisions are
made by giving up one want to satisfy another.
(Opportunity Cost)
Economic Systems
An economic system is loosely defined as country’s
plan for its services, goods produced, and the exact
way in which its economic plan is carried out. In
general, there are three major types of economic
systems prevailing around the world. Market
Economy, Planned Economy and Mixed Economy.
Investorpedia, http://www.investopedia.com/terms/s/systems.asp
Market Economy
In a market economy, national and state governments play a
minor role. Instead, consumers and their buying decisions
drive the economy. (example: United States)
Market decisions are mainly dominated by supply and
demand. The role of the government in a market economy is
to simply make sure that the market is stable enough to
carry out its economic activities properly.
Market economies aim to reduce or eliminate entirely
subsidies for a particular industry, the pre-determination of
prices for different commodities, and the amount of
regulation controlling different industrial sectors.
Planned Economy
Command economy. The most important aspect of this
type of economy is that all major decisions related to the
production, distribution, commodity and service prices, are
all made by the government. (Former Soviet Union, Cuba)
The planned economy is government directed, and market
forces have very little say in such an economy.
On the other hand, a planned economy aims at using all
available resources for developing production instead of
allotting the resources for advertising or marketing.
Mixed Economy
A mixed economy combines elements of both the planned
and the market economies in one cohesive system.
(Example: Canada)
This system prevails in many countries where neither the
Government nor the business entities control the economic
activities of that country both sectors play an important role
in the economic decision-making of the country.
Mixed economies arise in societies that seek to balance a
wide range of political and economic views.
Supply and Demand
Each specific good or service will have its own supply and
demand patterns based on price and personal preference.
If people demand a good and are willing to pay more for it,
producers will add to the supply. As the supply increases,
the price will fall given the same level of demand.
Ideally, markets will reach a point of equilibrium where
the supply equals the demand for a given price point; at this
point, consumer utility and producer profits are maximized.
Investorpedia, http://www.investopedia.com/terms/s/supply.asp
Equilibrium Point
Ideally, markets
will reach a point
of equilibrium
where the supply
equals the
demand for a
given price point;
at this point,
consumer utility
and producer
profits are
maximized.
Competition
Competition is about producers striving to get
consumers to buy their products.
In economics competition = rivalry among
producers to sell products to consumers.
Competition
As of 2004, which company was doing a better
job of competing, how do you know this?