WARM UPScenario: 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.
CHAPTER 3Economic Systems
FUNDAMENTAL QUESTIONS OF ECONOMIC SYSTEMS
What are the fundamental economic questions?How does each type of economic system answer these fundamental questions?
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?
6 MAJOR GOALS OF CHOOSING AN ECONOMIC SYSTEM
Economic FreedomEconomic EfficiencyEconomic EquityEconomic GrowthEconomic SecurityEconomic Stability
Economic Freedom
Freedom make, buy, or sell goods and services without government interference.
• Tough to achieve fully• Government protection from violators
Economic EfficiencyMaking 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 GrowthStriving 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
ECONOMIC SYSTEMS
TraditionalCommandMarket
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 EconomyCustoms 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?
COMMAND ECONOMY
What is a Command EconomyFailures of the 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 EconomyNo measurement of success• No incentives• No chance for improvements
Appearance of mistakesLack of substitutions
MARKET ECONOMYWhat is a 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 FREEFEW 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