Economic Systems


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traditional, command & market

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Economic Systems

  1. 1. Economic Systems
  2. 2. All Economic Systems seek to answer the three basic economic questions <ul><li>1) What to produce? </li></ul><ul><li>2)How to produce? </li></ul><ul><li>3) For whom to produce? </li></ul>
  3. 3. Traditional Economies <ul><li>Basic economic questions answered by </li></ul><ul><li>Ritual, Habit, and Custom </li></ul>
  4. 4. Traditional economies <ul><li>Individual roles and choices are defined by the customs of elders and ancestors </li></ul><ul><li>These economies are usually based in societies of hunter/gatherers </li></ul><ul><li>Sharing is a big part of these economies </li></ul>
  5. 5. Examples of traditional economies <ul><li>Australian aborigines </li></ul>
  6. 6. The Mbuti in Central Africa
  7. 7. The Inuit of Northern Canada
  8. 8. How do traditional economies answer the three basic questions? <ul><li>1) What to produce? Whatever ritual, habit or custom dictates </li></ul><ul><li>2) How to produce? However ritual, habit or custom dictate </li></ul><ul><li>3) For whom to produce? For whomever ritual, habit or custom dictate </li></ul>
  9. 9. Advantages of traditional economy <ul><li>There is little or no uncertainty…everyone knows what role to play. </li></ul><ul><li>Life is generally stable, predictable, and continuous </li></ul>
  10. 10. Disadvantages of Traditional economies <ul><li>Tend to discourage new ideas and new ways of doing things </li></ul><ul><li>Lack of progress lowers standard of living </li></ul>
  11. 11. Command Economies <ul><li>Basic economic questions answered by the government (central authority) </li></ul>
  12. 12. Examples of command economies <ul><li>Only two command economies left </li></ul><ul><li>All others have mixed in market economy with their command structure (China) </li></ul>
  13. 14. North Korea
  14. 15. How do command economies answer the basic economic questions? <ul><li>1) What to produce? Whatever the government says to produce </li></ul><ul><li>2) How to produce? However the government tells you to produce </li></ul><ul><li>3) For whom to produce? For whomever the government tells you to produce (ideally the entire society) </li></ul>
  15. 16. Advantages to command economy <ul><li>Because the government has total control over production and its factors, these economies can change rapidly. Whatever is needed most will be produced. </li></ul><ul><li>There is no uncertainty (people are told when and how to work) </li></ul><ul><li>Free education, health care, and other public services </li></ul>
  16. 17. Disadvantages of command economies <ul><li>Economy designed to meet needs not wants </li></ul><ul><li>No incentive to work hard…people don’t often lose their jobs, so they do the bare minimum to get by </li></ul><ul><li>Large bureaucracy means slow decision making, raises cost of production, lacks flexibility </li></ul><ul><li>No reward for initiative slows progress </li></ul>
  17. 18. Market Economies <ul><li>Basic economic questions answered by consumers </li></ul><ul><li>Dollars=Votes </li></ul>
  18. 19. Examples of market economies <ul><li>USA, Canada, UK, etc. etc. </li></ul>
  19. 20. Advantages of Market Economies <ul><li>Adjusts to change based on consumer wants </li></ul><ul><li>High degree of individual freedom </li></ul><ul><li>Low levels of government interference </li></ul><ul><li>Because individuals (with money) make the decisions, everyone (with money) has a voice in the way the economy runs </li></ul><ul><li>Wide variety of available goods & services </li></ul><ul><li>Many choices=high degree of consumer satisfaction </li></ul>
  20. 21. Disadvantages of Market Economies <ul><li>Poverty: only those with money can participate </li></ul><ul><li>Market does not provide for people’s basic needs. Governments must attempt to do this (think Katrina, Minneapolis bridge, etc.) </li></ul><ul><li>High degree of uncertainty people lose jobs, businesses fail </li></ul><ul><li>Greed based system puts profit before people (think about the loss of manufacturing jobs right here in Buffalo. What caused it?) </li></ul>
  21. 22. What kind of economy do the U.S.A., Canada, and the U.K. really have? <ul><li>Are they truly Free market Economies? </li></ul><ul><li>Does the government regulate businesses? </li></ul><ul><li>Does the government control any businesses? </li></ul>
  22. 23. Mixed Economic systems <ul><li>There is no such thing as a true laissez faire economy </li></ul><ul><li>Why? </li></ul>