Command vs. Market Economies, 1/25
WARM UP
• What is this
picture
saying about
the
differences
between
North and
South
Korea?
What are command and market
economies?
• Command /centrally planned economies…
• Market economies…
North Korea and South Korea
• Korea was a unified
country until the end of
WW2
• After the split, North
Korea became a
communist country with
a command economy
• South Korea became a
democratic republic with
a market economy
South Korean Industries
North and South Korea
North Korea
South Korea
GDP: $40 billion
$1.268 trillion
GDP per capita: $1.800
$31,220
Rank in Global Economy: 125
Rank in Global Economy: 15
North Korea Economy Explained
South Korea Economy Explained
HOW THE WORLD SEES NORTH
KOREA
Send a letter across the DMZ
• Write a letter to your Korean counterpart
about daily life in your country.
• Include
– Your job, overall happiness, your view of the
government
– Questions about your neighbor’s country
• Trace the story of
the $5 bill from
beginning to end in
this situation:
– Where did that $5
bill come from?
– Where will it go?
– And after that?
– And after that?
• (Don’t copy Q,
simply answer it in a
complete sentence)
Warm Up
In your notebooks…
COMMAND ECONOMIES
MARKET ECONOMIES
Command Economies
– Centrally planned economy
Command Economies
– Government determines
what, how and for whom
things will be produced
Command Economies
• Who is Karl Marx
and what did he
have to do with
Socialism and
Communism?
Command Economies Today
• No pure command
economies today
– modern
telecommunications
bringing about
change
Command Economies
• Disadvantages
– central planners
do not
understand local
conditions
– inefficient
– Shortages
– Few choices
Market Economies
• FEATURE 1
– Private property
rights protected
by law
– Relationship
between buyers
and sellers
organized in
markets
Market Economies
• FEATURE 2:
– Laissez faire
– Capitalism
– Producers create
goods according to
demand
– some government
involvement
Market Economies
• FEATURE 3: Voluntary Exchange in Markets
– Voluntary exchange
– Profit
Market Economies
• FEATURE 4:
– Competition
– According to Consumer
sovereignty who controls
what is produced?
– Competition checks
producers and buyers
Market Economies
• FEATURE 5:
Specialization How
does specialization
benefit consumers?
Market Economies
• Advantages
– Individuals free to make
economic choices
– Political Freedom
– Profit rewards hard work
Market Economies
• Disadvantages
– Does not give
security to sick
or aged
– Businesses did
not address
problems caused
by
industrialization
Hand over your
paycheck punk!
Mixed Economy
• A combination of pure
and centrally planned
economy
• The US is a mixed
economy
– Government only steps
in when needed but is
mostly hands off
– OSHA, federal
minimum wage, zoning
That’s why
America is
freaking
awesome.
Market Economies
• KEY CONCEPTS
– Circular flow model illustrates how interactions
occur in a market
– SEE PAGE 53
Circular Flow Model
(this is just an economist’s fancy way of showing you that you earn money, spend
money, and it’s all just a circle of life)
Product
Market
Firms
Households
Factor
Market
Circular Flow Model Homework
Assignment
• Create a Circular Flow Model using your own
example of economic activity (i.e. buying a
new iPad)
• Must be colored
• Must be neat
• Worth 20 points
• DUE TOMORROW