Economic Systems 1

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Economic Systems
Comparing Economic Systems
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Warm Up- Economic Systems
Free Market
Voluntary exchange of goods between individuals and
business in a market environment where goods are exchanged
for money. Individuals and private businesses decide what to
make and what to sell.
Centrally planned economy
There is no private property, the free market, consumer choice,
and competition are not good determining factors for an
economy. The central government decides what is produced
and by whom and how it is consumed.
Based on the definitions copy and answer the questions:
1. Which economic system do we have in the US and
why do you think so?
Activity-Economic Systems Gallery Exhibit
• You are going to create a Gallery Exhibit that describes
a type of economy.
• You will be divided into six groups; each group will be
assigned an economy.
• In your group, you will be responsible for relaying the
information to the rest of the class through your exhibit.
• Each Exhibit will include:
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A definition of the Economic system.
Three Advantages and Disadvantages of the system.
Specific terms that describe the economy.
A representative Icon for the economy.
• Finally, on a separate sheet of paper, write three
questions that the rest of the class should be able to
answer after visiting your Exhibit
Notes- Economic Systems
Type of
Economic
System &
Definition
Advantages
Disadvantages
Description of
Key terms
Communist
Manifesto
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-Karl Marx
-Bourgeoisie
-Proletariat
-Goal of the
Revolution
Communist Manifesto vs. Wealth of
Nations
• Communist Manifesto
– Written by Karl Marx
– Argued that history is a struggle between the
Bourgeoisie-owners, and the proletariat-workers.
– He predicted that as capitalists (bourgeois) gained
more wealth, the proletariat would become
dissatisfied and rebel to form a classless society.
Communist Manifesto vs. Wealth of
Nations
• Wealth of Nations
– Written by Adam Smith
– Argued that self interest of producers and consumers is the
motivating force behind the economy.
– Because of this self interest consumers get what they want at
reasonable prices, and producers make what is dictated by
the marketplace. This invisible hand guides the marketplace
without any central planning by government.
– The idea that government should not be involved in the
economy is known as laissez faire.
Keynesian Theory
• Written by John Maynard Keynes
• Argues that the economy is composed of three sectors:
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Individuals
Business
Government
Proposes that by using fiscal policy, the use of government
spending and revenue collection to influence the economy,
that the government can, and should, help the economy.
Working Economic Systems
• Command/Centrally planned Economies- When a central
authority is in command of the economy.
• Socialism- a social and political system based on the principal
that democratic means should be used to distribute wealth
evenly throughout society.
– In Socialist countries the government often owns many major
industries.
– Central planning is the key to economic equity.
• Communism- characterized by a central planned economy with
all economic and political power resting in the hands of the
central government.
– Usually communist governments come out of a revolution
which places an authoritarian regime in power.
Working Economic Systems
• Market Economy- economic system in which
decisions of production and consumption are
made by individuals, it is a voluntary system of
exchange in a marketplace, guided by self
interest.
– Market is based on the competition between
producers for the dollars of consumers
– Market economies are also referred to as free
markets, or capitalism.
Working Economic Systems
• Mixed Economy- most
modern economies are a
combination of market and
centrally planned.
– The government purchases
land, labor, and capital from
households in the factor
market, and
– Purchases goods and services
in the product market.
United States has an economy
based on this model.
Circular Flow Diagram of a Mixed Economy
Product market
monetary flow
physical flow
Households
expenditures
Government
expenditures
physical flow
monetary flow
Factor market
Firms
Working Economic Systems
• Traditional Economy- relies on habit, ritual or custom to
decide questions of production and consumption of
goods and services.
– Revolves around the family
– Work roles are divided by gender Agriculture and hunting are
usually central in their lives.
– Often these economies are slow to change and tend to be
stagnant.
– Bartering, or the direct exchange of goods or services for
another, is often the means of trade in this kind of economy.
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