Mr. Kraus Economics Economic Systems Why do we have Economic Systems? • Scarcity • Survival for any society depends on its ability to provide food, clothing, and shelter for its people. • The Economic System is the organized way a society provides for the wants and needs of its people. Three Economic Systems • Traditional Economy • Command Economy • Market Economy Economic Questions What to Produce How to produce For whom to produce Traditional Economy Market Economy Command Economy Traditional Economy • Economic activity is based on ritual, habit and custom Strengths of Traditional Economies • Everyone knows their role • Little uncertainty over what to produce or how to produce • The question of For Whom to produce is answered by custom • Life is generally stable, predictable, and continuous Weaknesses of Traditional Economies • Tends to discourage new ideas • Lack of progress leads to lower standard of living Market Economy • Markets allow buyers and sellers to come together in order to exchange goods and services Market Economy • People and firms act in their own best interest to answer economic questions Strengths • Markets can adjust over time • Freedom exists for everyone involved • Relatively small degree of governmental influence • Decision making is decentralized • Variety of goods and services are produced • High degree of consumer satisfaction Weaknesses • The primary weakness is deciding for whom to produce • The young, sick and old would have difficulty in a pure market environment • Markets sometimes fail Command Economy • Central authority makes most economic decisions • Economic decisions are made at the top and the people are expected to go along with choices their leaders make Strengths of Command Economies • Change direction drastically in a relatively short time Weaknesses of Command Economy • Not designed to meet the wants and needs of individuals • Lack of incentives to work hard leads to unexpected results • Large bureaucracy for economic planning • Not flexible in dealing with minor day to day problems • People with new or unique ideas are stifled BRAINSTORM Which of theses systems best describe the economy of the United States? Mixed Economy -No Economic System is purely Command or purely Market . -ALL economic systems use some combination of command and market features. LIKE A CONTINUUM Example: North Korea • Look for a few key elements – – – – Government Values Standard of living Answer the 3 economic questions In pods • Answer the 3 economic questions • Decide which type of economic system best describes North Korea’s economy • Discuss: Based on this video, how can you tell the type of economy North Korea has? Example: India • Look for a few key elements – – – – Government Values Standard of living Answer the 3 economic questions https://www.youtube.com/watch?v=PZpDjxIPpFc&feature=player_detail page In Pods • Answer the 3 economic questions • Decide which type of economic system best describes India’s economy • Discuss: Based on this video, how can you tell what type of economic system India has? Now find your own! • Choose 2 countries. • Research those countries (as well as India and the U.S.) Things to think about: Government Standard of Living Values 3 Economic Questions Choose one of the countries you researchedIn 1 paragraph, tell me what country you have chosen, what are some of the values your country has, and what type of economic system has. Make a connection between the country’s values and the economic system.