WARM UP
Scenario: What Would You Do?
• What goods and services will be produced?
• Of the following, which will you produce for your people?
Choose ONLY 4
– Local Defense, Food, Healthcare, Clothing, Technology, Transportation,
Public Schooling, National Defense
• How will the goods and services be produced?
• Who will produce it? The People or the Government?
• Who will get the goods and services?
• Prioritize the following groups and why they get it first.
• Rich, Middle Class, Poor, Adults, Children, Sick, Healthy
• Create your “Island” and explain how your society
would work.
Economic Systems
CHAPTER 3
What are the fundamental economic questions?
How does each type of economic system answer these fundamental
questions?
FUNDAMENTAL QUESTIONS OF
ECONOMIC SYSTEMS
THERE ARE 5 FUNDAMENTAL
QUESTIONS…
1. What goods and services will be produced?
2. How will the goods and services be
produced?
3. Who will get the goods and services?
4. How will the system accommodate change?
5. How will the system promote progress?
Economic Freedom
Economic Efficiency
Economic Equity
Economic Growth
Economic Security
Economic Stability
6 MAJOR GOALS OF CHOOSING AN
ECONOMIC SYSTEM
Economic Freedom
Freedom make, buy, or sell goods and services
without government interference.
• Tough to achieve fully
• Government protection from violators
Economic Efficiency
Making the most of resources with the least
amount of waste
• Includes all natural and human resources
• FULL Employment is the ultimate goal
Economic Equity
Fair distribution of society’s wealth. Everyone gets a fair share of
the economic pie.
•
Problems:
•
•
•
What is equal?
Who gets a little? Who gets a lot?
What about the rich and the poor?
Economic Growth
Striving to produce more goods and better quality
goods
• This is usually a goal of all economic systems
Providing to support those who cannot support
themselves
• Those who are too young, too old, too sick, or
the dying
Economic Stability
Keeping the economy running well and stable
• Things should be predictable
Traditional
Command
Market
ECONOMIC SYSTEMS
Economic Systems
The ways in which a country decides to produce,
buy, and sell their products and resources
• There are 3 major types of economic systems:
• Traditional (Subsistence)
• Command (Socialism/Communism)
• Market (Capitalism)
Traditional Economy
Customs and traditions dictate the economy.
• Examples:
• American Indian tribes
• African Tribes
Where are the people
in each cartoon?
Who or what decides
what consumers get in
Cartoon A? Cartoon B?
What advantages and
disadvantages do you see
represented in Cartoon A?
Cartoon B?
Which store would you
prefer to shop in, and
why?
What is a Command Economy
Failures of the Command Economy
COMMAND ECONOMY
Command Economy
Government makes all the decisions.
Government answers fundamental questions.
•
Favor equity and security
Economy is centralized.
SHORTAGES DID OCCUR
Examples:
•
USSR
Failures of a Command Economy
Coordination of the Economy
No measurement of success
• No incentives
• No chance for improvements
Appearance of mistakes
Lack of substitutions
What is a Market Economy?
MARKET ECONOMY
The Market Economy
Economy depends on decisions made
by individuals (producers and
consumers)
Favors economic freedom and
efficiency
Individuals and business are free to
make their own economic choices---competition
NORTH KOREA
EXTREMELY RESTRICTED
BY THE GOVERNMENT
HONG KONG
EXTREMELY FREE
FEW REGULATIONS
“The Invisible Hand”
Main point of Adam Smith’s The Wealth of Nations
(1776)
– Adam Smith = Father of economics
The Invisible Hand
– Idea of self-interest and how it promotes economic
prosperity without the individual knowing
60 Seconds Economics Lessons-The Invisible hand
Incentives and the Free Market
Incentives are the driving force in a market
system
– Utilizing hard work, skill, innovation to make a
profit
– The incentive to better your situation
– Encouragement of taking risks
– Freedom of choice
• You are allowed to make choices in the market that
increase your personal gain
– Private Property
Private Property
What is your definition of private property?
– The right of private individuals or firms to do
obtain, own, control, employ, dispose of, or give
land, capital, or any other sort of property