
What goods and
services will be
produced?
› What do we have?

How will they be
produced?
› Hand > machine >
elsewhere

Who gets the stuff?
› Who reaps the
benefits?

Economic system (economy) – an
organized way of providing for the wants
and needs of people.
1). Command
2). Market
3). Traditional

Economic activity is planned out by the
government, with people having little
influence.

Examples:
› Cuba
› North Korea
› Former Soviet Union

Allows an economy to change direction
very quickly.
› After Stalin’s first two Five-Year Plans, Russia
moved from a rural agricultural economy to
an industrial economy.

Little uncertainty as to who will do what.

No unemployment because the
government gives everyone a job
(whether it is needed or not).
› Ayn Rand - Anthem

Not designed to meet the wants of
consumers.
› Stalin’s Five Year Plan directed resources
away from both agriculture and consumer
goods.

Provides strange incentives
› Do just enough to meet quotas.

No rewards for individual performance.
› Tetris

No flexibility to handle problems.
› Great Depression disrupted the USSR’s First
Five-Year Plan

Requires a large decision making
agency.
› Stalin’s Five-Year Plans governed all
economic activity in Russia…that’s a lot of
paperwork!

People and businesses act in their own
best interests to answer the three basic
economic questions.

Lure of personal and
financial gain leads
consumers and
businesses to interact
in various markets.

Each person acts as
they see fit in order
to advance their
own interests.

“It is not from the
benevolence of the
butcher, the brewer,
or the baker that we
expect our dinner,
but from their regard
to their own interest.”
– Wealth of Nations,
1776

Economy can adjust to change over time
› Businesses can adapt to changing consumer
tastes by creating new/different products.

High degree of individual freedom
› Businesses and individuals are free to do what
they want.

Small degree of government
interference (Mixed Economy)

Economic decisions are made by all, not
limited to government officials.

Seemingly unlimited variety of goods
and services available to consumers.

Does not provide for the basic needs of
everyone.
› Elderly, disabled and other groups would be
unable to survive in a market economy without
governmental assistance.

Does not provide
certain services that
people value.
› National Defense &
Education.

High degree of
uncertainty
› Tommy Boy
› Jobs going overseas
› Market Failures

Economic activity is
based on tradition
with roles
determined by
previous
generations.

Examples:
› Medieval Europe
› Various hunting tribes
in Africa and northern
Canada
 Everyone
knows what
their role is.
 Life
is generally
predictable
and stable.

Discourages new ideas and new ways of
doing things.

Lack of progress leads to a lower standard of
living.

Mixed Economy
› Market and command
› Government meets some public needs
 National defense, education, infrastructure,
programs to help needy

Capitalism

Based on 4 important principles
›
›
›
›
Private Property
Freedom of choice
Profit
Competition




Economic Freedom
Economic Equity
Economic Security
Price Stability

Individuals have freedom to choose their
own occupations, employers, and
spending habits.

Businesses have freedom to choose how
and where to produce goods/services.

Are we meeting this goal?

People should receive equal pay for equal work.

People should receive adequate pay for the work
they perform.

People should all have the same opportunities to
get ahead.

Are we meeting this goal?

We should have protection from
negative economic events such as
layoffs and injuries.
› Social Security – federal program that
provides disability and retirement benefits.

Everyone should have their basic needs
met.

Are we meeting this goal?
…People get mad!!!!!!!
As you listen, think
about the goals of:


Economic Equity?
Economic Security?