TYPES OF ECONOMIES
WHO AND WHY?
 Who makes economic decisions?
 Who owns resources?
 Who provides goods and services?
 Why?
Either ... or ...
FREE MARKET
ECONOMY
WHO
makes
economic
decisions?
WHY?
COMMAND ECONOMY
(PLANNED ECONOMY)
Either ... or ...
FREE MARKET
ECONOMY
COMMAND ECONOMY
(PLANNED ECONOMY)
WHO
makes
economic
decisions
The market:
-supply and demand
-sellers-buyers
-producers –
consumers
The state
WHY?
-to allow competition
and thus make the
economy more efficient
↓
-to provide better
quality products at
lower costs
-to redistribute wealth
in the country more
fairly
-to care for public
needs
Group the following expressions:












government interference
privately-owned companies
market mechanism
market reliance
state-owned companies
central planners
laissez-faire
government-run business
central planning system
privately-run companies
government intervention
USSR
PLANNED E.
 government
interference
 state-owned
companies
 central planning
 government
intervention
 USSR
vs.
MARKET E.
 market mechanism
 market reliance
 privately-owned
companies
 privately-run
companies
 laissez-faire
... or both...
FREE MARKET
ECONOMY
(FREE ENTERPRISE
ECONOMY)
WHO
The market:
makes
-supply and
economic demand
decisions
COMMAND
ECONOMY
(PLANNED
ECONOMY)
MIXED
ECONOMY
The state
Both the
market and
the state
-to
redistribute
wealth in the
country more
fairly
-to care for
public needs
To benefit
from both
economic
systems
-sellers-buyers
-producers –
consumers
WHY
-to allow
competition and
make the economy
more efficient
-to provide better
quality products at
lower costs
Identify the advantages and disadvantages of the
market economy as opposed to the command
economy (R: p.13). - Assignment
FREE MARKET
ECONOMY
advantages
disadvantages
COMMAND ECONOMY
(PLANNED ECONOMY)
“The market has a keen ear for private
wants, and a deaf ear for public
needs.” (R. Heilbroner)
MIXED ECONOMY
PUBLIC SECTOR VS. PRIVATE SECTOR
Who provides goods and services?
Why? (What is their interest?)
What do the two sectors consist of?
WHO AND WHY?
PUBLIC SECTOR
 The government,
local authorities
(e.g. municipalities,
counties)
 Care for socially
important issues of
public interest (e.g.
protecting
environment,
consumers, education)
 Less profitable and
unprofitable
businesses
VS.
PRIVATE SECTOR
 Private owners
 Making a profit
 Profitable businesses
WHAT DOES IT CONSIST OF?
PUBLIC SECTOR
 State services: e.g.
education, defence,
social welfare, public
safety, utilities
 Government-owned
industries: e.g. public
corporations* (e.g.
electricity company)
 Municipal
enterprises: local
government, e.g. bus
company
VS.
PRIVATE SECTOR
 Privately-owned
companies
The division is not always so clear ...
PRIVATE S.→PUBLIC S. →PRIVATE S. → ?...
nationalisation
denationalisation
privatisation
... and there may be cases of cooperation ....
PPP
nationalisation vs. privatisation
Are the following arguments in favour of nationalisation
or privatisation?
1.
2.
3.
4.
5.
6.
7.
The sale of an industry raises money for the
government.
Competition makes an industry more efficient.
It is socially right.
These companies are more likely to innovate
and develop desirable products than these
owned by … .
The government has a better control of the
economy.
Consumers are offered more choice and better
quality.
An industry is more efficiently managed by that
sector.
What is privatization, anyway?
(Read the text, find answers - R:p.24)
 in the broadest
sense
 contractor
 seek
 though
 leap
 state enterprise
 issue vouchers
 general public
 auctions
 public stock
offering
 contradictory goals
 raise money
 attract
 layoffs
 proponents
 argue
Homework:
1. R: p.27a) fill in b)heading for each pg.
2. MK:pp.129 and 130
Compare the two texts
The Role of Government:
Galbraith vs.Friedman
Make clearly structured notes based on
the two texts. (Use graphics to show
the structure:e.g., bullet points, vs.,
etc., …)-Wed group: TO BE SUBMITTED
IN CLASS (HANDWRITTEN)
Free market economy or state
intervention in times of crisis (1)?
 “Ten short days saw the nationalisation,
failure or rescue of what was once the
world’s biggest insurer, two of the world’s
biggest investment banks, and two giants
of America’s mortgage markets”
 “The bankruptcy of Lehman Brothers and
the sale of Merrill Lynch to Bank of
America”
 “government rescue of American
International Group (AIG)”
The Economist, 20 Sept 2008
Free market economy or state
intervention in times of crisis (2)?
“Regulation is necessary and much
must now be done to improve the
laws of finance”:
 better oversight
 more transparency
 supervision of giants
 accounting that values risk better
 safer financial transactions
(derivatives)
The Economist, 20 Sept 2008