Ch02 ppt

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  • Ch02 ppt

    1. 1. Chapter 2 Economic systems
    2. 2. Lecture Plan <ul><li>Scarcity and economic systems </li></ul><ul><li>The market economic system </li></ul><ul><li>The command economic system </li></ul><ul><li>The mixed economy </li></ul><ul><li>Market systems versus command systems </li></ul><ul><ul><li>Advantages and disadvantages </li></ul></ul>
    3. 3. Economic Systems <ul><li>The way a nation is organised to respond to the problem of scarcity </li></ul><ul><li>Different economic systems use different methods to answer the Basic Economic Questions , that is: </li></ul><ul><ul><li>What to produce </li></ul></ul><ul><ul><li>How to produce </li></ul></ul><ul><ul><li>For whom to produce </li></ul></ul>(cont.)
    4. 4. Economic Systems (cont.) Unlimited Needs and Wants Scarce Productive Resources Relative Scarcity Basic Economic Questions The Need for an Economic System
    5. 5. Types of Economic Systems <ul><li>The market economy </li></ul><ul><li>The command economy </li></ul><ul><li>The mixed economy </li></ul>
    6. 6. 1. Market Economies <ul><li>Also called Capitalist or Private Enterprise systems </li></ul><ul><li>Features are: </li></ul><ul><li>Productive resources are predominantly owned by the private sector </li></ul><ul><li>Economic decision making is decentralised, i.e. the level of government intervention is low </li></ul><ul><li>Economic motivation is self interest (utility or profit) </li></ul>
    7. 7. Market Systems: Advantages and Disadvantages <ul><li>Advantages of market systems </li></ul><ul><ul><li>Economic freedom </li></ul></ul><ul><ul><li>Minimum state intervention maximises individual welfare </li></ul></ul><ul><ul><li>Efficiencies (in production, distribution and consumption) </li></ul></ul><ul><li>Disadvantages of market systems </li></ul><ul><ul><li>Unequal distribution of income and wealth </li></ul></ul><ul><ul><li>Exploitation of the economically poorer and less powerful </li></ul></ul><ul><ul><li>Disadvantaged groups (e.g. migrants, long-term unemployed) are unfairly treated </li></ul></ul>
    8. 8. 2. Command Economies <ul><li>Also called socialist or centrally planned economies </li></ul><ul><li>Features are: </li></ul><ul><li>Productive resources are owned predominantly by the state or government sector </li></ul><ul><li>Economic decision making is undertaken by a central authority or government </li></ul><ul><li>Collective welfare (i.e. goods/services) distributed to benefit the state as a whole, rather than individuals </li></ul><ul><li>Allocation by non-price mechanisms </li></ul><ul><li>Equity is valued </li></ul>
    9. 9. Command Economies: Advantages and Disadvantages <ul><li>Advantages of command systems </li></ul><ul><ul><li>Abundant provision of collective goods (e.g. education, health, public transport and recreational facilities) </li></ul></ul><ul><ul><li>The government provides employment security </li></ul></ul><ul><ul><li>Equal opportunity and equity </li></ul></ul><ul><li>Disadvantages of command systems </li></ul><ul><ul><li>Inefficiencies and waste of human resources </li></ul></ul><ul><ul><li>Cumbersome decision making </li></ul></ul>
    10. 10. 3. The Mixed Economy <ul><li>All modern economies are said to be a mixture of </li></ul><ul><ul><li>market forces and </li></ul></ul><ul><ul><li>government intervention </li></ul></ul><ul><li>In the past, major examples of centrally planned economies were the former USSR and China. These now have allowed levels of market forces to operate </li></ul>
    11. 11. Economies in Transition <ul><li>The ‘All-Out’ Approach </li></ul><ul><li>Examples: Poland, East Germany, Russia, Czech republic </li></ul><ul><li>Rapid price and trade liberalisation </li></ul><ul><ul><li>immediate opening of markets </li></ul></ul><ul><ul><li>privatisation of most state-owned enterprises </li></ul></ul><ul><ul><li>reform of tax, legal and financial system </li></ul></ul>(cont.)
    12. 12. Economies in Transition (cont.) <ul><li>The Phased approach </li></ul><ul><li>Example: China </li></ul><ul><li>1978 — opening the doors to joint ventures </li></ul><ul><li>Gradual price liberalisation </li></ul><ul><li>Agricultural reform </li></ul><ul><li>Reform of state-run enterprises </li></ul><ul><li>Relaxed restrictions on ‘non-state’ industrial firms (e.g. collectives, local government) </li></ul>
    13. 13. <ul><li>Many centrally planned economies have adopted elements of market economies and many capitalist economies continue to use aspects of government intervention </li></ul>Convergence Theory

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