Economic systems

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Economic systems

  1. 1. Economic Systems Chapter 2
  2. 2. What will you learn today? <ul><li>Advantages and disadvantages of traditional, market, and command economies </li></ul><ul><li>Characteristics of market, traditional, and command economies </li></ul><ul><li>Economic system of another country </li></ul>
  3. 3. 3 Basic Questions <ul><li>What to Produce </li></ul><ul><li>How to Produce </li></ul><ul><li>3. For Whom to Produce </li></ul>
  4. 4. Traditional <ul><li>Answer questions based on ritual or custom </li></ul><ul><li>“ That’s the way we have always done it ville” </li></ul><ul><li>Based on traditions of elders/ancestors </li></ul>
  5. 5. Traditional Examples <ul><li>What to Produce? </li></ul><ul><ul><li>Megalith/Stonehenge </li></ul></ul>
  6. 6. Traditional Examples <ul><li>How to Produce? </li></ul><ul><ul><li>Ritual/pre-modern Japan </li></ul></ul>
  7. 7. Traditional Example <ul><li>For Whom to Produce? </li></ul><ul><ul><li>Potlatch Guests/Northern Pacific Native Americans </li></ul></ul>
  8. 8. Traditional <ul><li>Advantages </li></ul><ul><ul><li>Everyone knows their role </li></ul></ul><ul><ul><li>Stable and predictable </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Discourages new ideas </li></ul></ul><ul><ul><li>Stagnation </li></ul></ul><ul><ul><li>Lower standard of living </li></ul></ul>
  9. 9. Command Economy <ul><li>Central authority makes What, How, and For Whom decisions </li></ul><ul><li>Government determines how resources are used </li></ul><ul><li>“We Do What We’re Told Ville” </li></ul>
  10. 10. Command <ul><li>What to produce </li></ul><ul><ul><li>During the rule of Mao Zedong – Mao suit </li></ul></ul>
  11. 11. Command <ul><li>How To Produce </li></ul><ul><ul><li>Manual Labor </li></ul></ul><ul><ul><li>1930s </li></ul></ul><ul><ul><li>Canal between White and Baltic Seas </li></ul></ul><ul><ul><li>Too narrow and shallow for ships </li></ul></ul>
  12. 12. Command <ul><li>For Whom to Produce </li></ul><ul><ul><li>Ancient Egypt = King </li></ul></ul><ul><ul><li>Tombs </li></ul></ul><ul><ul><li>Wooden hammer and metal chisel to dig tomb into mountain </li></ul></ul>
  13. 13. Command <ul><li>Advantages </li></ul><ul><ul><li>Little uncertainty about job </li></ul></ul><ul><ul><li>Provide education, and healthcare at no cost, but minimal amounts </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Does not meet wants of consumer </li></ul></ul><ul><ul><li>No incentive to work, just fill quota </li></ul></ul><ul><ul><li>Requires large decision making bureaucracy </li></ul></ul><ul><ul><li>Not flexible with day to day crisis </li></ul></ul><ul><ul><li>No rewards for initiative </li></ul></ul>
  14. 14. Market <ul><li>People and firms in their own best interests decide on the What, How, and For Whom </li></ul><ul><li>Consumers not just producers decide what to produce </li></ul>
  15. 15. Market <ul><li>What to produce </li></ul><ul><ul><li>Beanie Babies! </li></ul></ul>
  16. 16. Market <ul><li>How to Produce </li></ul><ul><ul><li>1900s </li></ul></ul><ul><ul><li>Henry Ford </li></ul></ul><ul><ul><li>Assembly Line </li></ul></ul>
  17. 17. Market <ul><li>For Whom to Produce </li></ul><ul><ul><li>Broad Market </li></ul></ul>
  18. 18. Market <ul><li>Advantages </li></ul><ul><ul><li>Individual freedom </li></ul></ul><ul><ul><li>Small degree of government interference </li></ul></ul><ul><ul><li>Decentralized decision making </li></ul></ul><ul><ul><li>Plethora of goods and services </li></ul></ul><ul><ul><li>High degree of consumer satisfaction </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Rewards only productive resources: Does not provide for people too young, too old, or too sick </li></ul></ul><ul><ul><li>Does not produce enough public goods </li></ul></ul><ul><ul><li>High degree of uncertainty </li></ul></ul><ul><ul><li>Market failures </li></ul></ul><ul><ul><ul><li>Competitive </li></ul></ul></ul><ul><ul><ul><li>Adequate info </li></ul></ul></ul><ul><ul><ul><li>Freely moving resources </li></ul></ul></ul>

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