Economic Systems – Ch 2 Subtitle Section 1 – Introduction to Economic Systems • Economic system – the way society uses it scarce resources to satisfy it people’s unlimited wants. • Activity – fill in chart of economies of the world 3 Types of Economic Systems Traditional • There are 3 basic types of economic systems in the world today, although most countries practice a combination or “mixed” economic model. • Families, clans or tribes make decisions • Goal is survival and all people are involved Command • Government decides what will be produced and how • Needs of the country are the priority Market • Economy based on individual choice • Seek their own interest and benefit others Advantages and Disadvantages to Traditional Economy Advantages • • Answers 3 economic questions clearly Methods of production don’t change • System of distribution is based on custom • Little disagreement about goals Disadvantages • Resist change so less productive • Prevent people from doing jobs they want to do • No accumulation of wealth • Lower standard of living Pressure to Change • Traditional Economic Systems are under pressure to change with increasing globalization • Many young people leaving traditional economies and some adapting technology in farming Section 2 – Command Economies • Command economies are centrally planned, meaning the society’s leaders make all decisions Karl Marx • Marx was a 19th century German philosophy, historian and economist • Identified struggle between the classes • Predicted transfer of power to the public, overthrow of private ownership • All citizens would share wealth, wrote Communist Manifesto and Das Kapital Socialism • System in which government owns all or some factors of production • Developed from Marx’s ideas Command Economies today • North Korea – focused heavily on military buildup through 1990s. • Food was so scarce, millions died from hunger Advantages and Disadvantages to Command Economy Advantages Disadvantages • Seek to care for everyone • • Sick and unproductive are cared for Little understanding of local conditions • Workers have little motive to improve productivity • Nation’s resources can be used to produce things that may not sell in a market economy (medicine, etc) • No private property, so workers don’t use resources wisely • Shortages due to lower prices and high demand • Individual rights are subordinate to needs of state Section 3 – Market Economies • 5 Freedoms in a Market Economy 1. 2. 3. 4. 5. Freedom to own property Freedom to earn a living Freedom to buy and sell Freedom to compete Freedom to earn a profit Group Activity • Groups of 3-5 assigned “freedom” Groups will read pg 49-51 and: • Identify how/why that freedom is important in a market economy • What would happen if that feature did not exist? • Share your information with the class, each student will fill in chart about freedoms and what they mean. Circular Flow in Market Economies • Visualizes how all interactions occur in a market economy • All goods and services are exchanged between households, businesses and product and factor markets. • Page 53 circular flow model questions Advantages and Disadvantages to Market Economy Advantages Disadvantages • No mechanism for providing public goods and services (defense) • Economic and political freedom • Freer political process and open elections • Cannot provide security to old and sick • Profit • • Better knowledge of resources Unequal distribution of wealth, unequal opportunities • Low wages, focus on profit • Pollution and other hazards • Greater productivity Section 4 – Modern Economies in a Global Age • Mixed Economy – elements of traditional, command and market • U.S. has a mixed economy. What elements of the U.S. economy are command? What aspects are market? Trends in Modern Economies • Nationalize – change from private to public ownership • May think the U.S. should nationalize healthcare – what do you think? • Privatize – change from public to private ownership • Many think the U.S. should privatize social security – what do you think? Activity • On a separate piece of paper, write arguments FOR or AGAINST government run healthcare. Then make arguments FOR or AGAINST privatizing social security. (we will look at some facts!) Global Economy • Economic interactions that cross international boundaries. • Write a list of things you are using today (shirt, pencil, backpack, etc) • Class will share responses to see where products are made. • Answer question – why do you think so many products are made outside the U.S? Do you agree or disagree with “globalization”? Why?