2. LLaaww ooff iinnccrreeaassiinngg nneeeeddss::
for every 10 years the number of consumer goods and
services increased by more than 2 times.
Two factors why available goods and services are not
enough to satisfy the human’s material wants:
UUnnlliimmiitteedd hhuummaann nneeeeddss aanndd wwaannttss
LLiimmiitteeddnneessss ooff pprroodduuccttiivvee rreessoouurrcceess
((-- llaabboorr sshhoorrttaaggee;;
-- aa llaacckk ooff ::
-- nnaattuurraall rreessoouurrcceess;;
-- ccaappaacciittyy aanndd ffiinnaanncceess;;
-- tteecchhnnoollooggiieess..)
3. WWhhaatt iiss SSccaarrcciittyy??
SSccaarrcciittyy - refers to the condition that all resources
are available only in limited supply.
Oh no-o-o…there
is only one
snickers and two
of us!
You’re right
but I am the
one getting it!!
4. MMaakkiinngg DDeecciissiioonnss AAbboouutt PPrroodduuccttiioonn
No society has enough productive
resources available to produce everything
people want.
Every society must, therefore, make
choices.
6. TThhee tthhrreeee bbaassiicc eeccoonnoommiicc
pprroobblleemmss
1. What to produce and in what
quantities?
2. How to produce?
3. For whom to produce?
7. WWhhaatt ggooooddss aanndd sseerrvviicceess ttoo
bbee pprroodduucceedd??
When the maximum combinations of
goods and services that can be
produced has been reached, an
increase in the quantity of the given
product means a decrease in quantity
of another one.
8. HHooww sshhoouulldd tthheessee ggooooddss aanndd
sseerrvviicceess bbee pprroodduucceedd??
Goods and services must be developed
or produced at its optimum level – that
is maximum output with a minimum
input without sacrificing the quality.
9. FFoorr wwhhoomm sshhoouulldd tthheessee ggooooddss
aanndd sseerrvviicceess bbee pprroodduucceedd??
““WWhhoo sshhoouulldd ccoonnssuummee tthhee pprroodduucceedd ggooooddss aanndd sseerrvviicceess??””
We should think also whose generation
will receive these goods and services:
the present or the future generation.
11. TThhee EEccoonnoommiicc SSyysstteemm
Refers to a set of economic
institutions that dominate a given
economy with the main objective of
solving the basic economic problems.
12. FFoouurr eeccoonnoommiicc ssyysstteemmss ::
TTrraaddiittiioonnaall EEccoonnoommyy is a system in which economic
decisions are based on customs and beliefs that have been
handed down from generation to generation.
Essential characteristics:
– Communal land ownership;
– The leader decides on the management of agricultural
production which is the basis of the economy;
– The production, distribution, and use of economic
resources are based on traditional practices;
– New technologies are not welcomed since they are in
contrast with the traditional practices of their ancestors;
– The economy is only its third priority while culture and
religion are its foremost priorities.
16. CCoommmmaanndd EEccoonnoommyy (socialist or centrally
planned economies)
Essential characteristics:
– Resource allocation is done by government;
– Presence of central planning of all economic
activities;
– There is no free competition;
– Only the government plays the role in setting
legal framework for economic life production
and distribution of goods and services.
17. CCoommmmaanndd EEccoonnoommyy
AAddvvaannttaaggeess
– Speed in which resources can be rerouted ;
– Little uncertainty;
– The government provides employment security;
– Abundant provision of collective goods;
– Equal opportunity and equity.
18. CCoommmmaanndd EEccoonnoommyy
DDiissaaddvvaannttaaggeess
Not designed for consumer wants-basic
needs provided sacrifice for the good of the
state and benefit for future generations.
No incentive to work hard. Individual abilities
are not considered.
Little flexibility-discourages change. Large
bureaucracy.
19. MMaarrkkeett EEccoonnoommyy (Capitalist or Private Enterprise
systems)
Essential characteristics:
– The private sector owns and manages the
means of production;
– The price system in a market structure
applies to determine how much will be paid
for a certain commodity or service;
– There is minimum government interference
on decisions pertaining to the management
of the economy;
– Prices are influenced by supply and
demand.
20. MMaarrkkeett EEccoonnoommyy
AAddvvaannttaaggeess
– Economic freedom;
– Minimum state intervention, maximises individual
welfare;
– Efficiencies;
– Variety of goods and services;
– High consumer satisfaction;
– Freedom to chose career, own private property,
take risks and earn profits.
21. MMaarrkkeett EEccoonnoommyy
DDiissaaddvvaannttaaggeess
- Existence of competition often results in monopoly;
- Unequal distribution of income and wealth;
- Exploitation of the economically poorer and less
powerful disadvantaged groups;
- Doesn’t provide for basic needs of all members;
- Doesn’t provide enough services people, highly
value education, healthcare;
- High degree of uncertainty for workers and
business.
22. LLAAIISSSSEEZZ--FFAAIIRREE EECCOONNOOMMIIEESS::
TTHHEE FFRREEEE MMAARRKKEETT
llaaiisssseezz--ffaaiirree eeccoonnoommyy Literally from the
French: “allow [them] to do.”
In economics, laissez-faire describes an
environment in which transactions between
economic agents are free from state
intervention, including restrictive regulations,
taxes, tariffs and enforced monopolies.
23. DDooeess aa llaaiisssseezz--ffaaiirree eeccoonnoommyy rreeaallllyy eexxiisstt??
In a truly free market (or laissez-faire
economy), the government would not be
involved at all.
There would be no laws to protect workers
form unfair bosses.
There would be no rules to make sure that
credit cards were properly protected.
24. WWhhyy tthhee mmaarrkkeett ssyysstteemmss aarree
nnoott ppeerrffeecctt??
First, they do not always produce what people want
at lowest cost—there are inefficiencies.
Second, rewards (income) may be unfairly
distributed, and some groups may be left out.
Third, periods of unemployment and inflation recur
with some regularity.
25. MMiixxeedd EEccoonnoommyy
Essential characteristics:
– The means of production are owned and controlled by
the private sector as well as the government;
– The people decide on economic activities within the
economy;
– The combinations of the best features of capitalist and
command economies are observable in the market;
– The problem of distribution of goods and services and
allocation of economic resources are determined through
a combination of the market and governmental laws and
policies.
26. Most economic systems are mixed, although
they are usually identifiable as being predominantly of
one type or another.
RRuussssiiaa
is best described as a market system but it contains
many command elements like regulatory agencies and
executive orders issued by the president. Traditional
system elements are observed, like in the way many
young people choose their parents’ occupation.
27. CCoonnttiinnuuuumm ooff MMiixxeedd EEccoonnoommiieess
Pure command Pure market
Iran
North Korea
Cuba
South Africa
China
Russia
Botswana
Greece
France
Peru
Source: 1999 Index of Economic Freedom, Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick
United Kingdom
Canada
United States
Hong Kong
Singapore
28. The Wall Street Journal and
The Heritage Foundation, Washington's preeminent think
tank, have tracked the march of economic freedom around
the world with the influential Index of Economic Freedom.
The ten ccoommppoonneennttss ooff eeccoonnoommiicc ffrreeeeddoomm aarree::
■Business Freedom
■Trade Freedom
■Fiscal Freedom
■Government Spending
■Monetary Freedom
■Investment Freedom
■Financial Freedom
■Property Rights
■Freedom from Corruption
■Labor Freedom
29. TToopp 1100
1. Hong Kong - 89.7
2. Singapore - 87.2
3. Australia - 82.5
4. New Zealand - 82.3
5. Switzerland - 81.9
6. Canada - 80.8
7. Ireland - 78.7
8. Denmark - 78.6
9. United States - 77.8
10. Bahrain 77.7
31. FFrraannccee
stands as one of the world’s leading economic powers,
possessing large agricultural, industrial and service
sectors. France operates a mixed economy that
combines capitalist and socialist characteristics.
Capitalism involves private ownership of capital and other
means of production. Under socialism, the government
directs economic activity and owns all or part of most
industries. Despite extensive reforms over the years that
have reduced government intervention in the economy,
the French government still exercises great control over
the economy, owning shares in many of the country’s
largest companies.
32. Ten EEccoonnoommiicc FFrreeeeddoommss ooff
FFrraannccee
OOvveerraallll SSccoorree:: 6644..66
WWoorrlldd RRaannkk:: 6644
Business Freedom 85.6 Investment Freedom 55.0
Trade Freedom 82.6 Financial Freedom 70,0
Fiscal Freedom 52.3 Property Rights 80.0
Government Spending 16.4 Fdm. from Corruption 16.4
Monetary Freedom 83.7 Labor Freedom 51.4
35. CCuubbaa’’ss CCoommmmaanndd EEccoonnoommyy
Most of the means of production are
owned and run by the government
and most of the labor force is
employed by the state.
In the year 2010, the public sector
employment was about 77% and the
private sector about 23%.
The Cuban government sets most
prices and rations goods to citizens.
36. Ten Economic FFrreeeeddoommss ooff CCuubbaa
OOvveerraallll SSccoorree:: 2277..77
WWoorrlldd RRaannkk:: 117777
Business Freedom 10.0 Investment Freedom 0.0
Trade Freedom 62.2 Financial Freedom 10.0
Fiscal Freedom 49.0 Property Rights 10.0
Government Spending 0.0 Fdm. from Corruption 44.0
Monetary Freedom 76.1 Labor Freedom 20.0
37. -- EE NN DD --
Thank you!
Any questions?
If none, then you may go.
Editor's Notes
explains or describes how economic systems answer basic questions about production and distribution of goods and services, The way that each individual lives in a society is based on how the country handles problems and questions involving their economy. These are issues dealing with inflation, consumer needs, and so forth.
is the condition of not being able to have all of the goods and services one wants because resources are limited and our wants are not.
The way that each individual lives in a society is based on how the country handles problems and questions involving their economy. These are issues dealing with inflation, consumer needs, and so forth.
Let us consider the contents of each problem.
It is not always possible to produce all goods and services that people want because resources are limited.
“who should consume the produced goods and services?”
Or is the way in which country solves the problem of lack of resources and achieve its economic aims.
*A traditional economy is an economy that answers the three questions based on their social customs and how the society has dealt with these questions in the past. A country's customs can differ greatly to that of a neighboring country, so traditional economies vary from one another.
Examples
Inuit of North America
San of the Kalahari in Africa
Aborigines of Australia The Tuareg of the Sahara in northern Africa are nomadic herders who travel about the region in search of food and water for their animals. They produce most of the things they need and trade with others for what they need and cannot produce.
There is little or no uncertainty…everyone knows what role to play.
Life is generally stable, predictable, and continuous
Lack of many resources
Only produce enough to live on
Tend to discourage new ideas and new ways of doing things
Lack of progress lowers standard of living
Does a pure economic system really exist?
No- they are all mixed economies to some degree
When studying different economic systems, it is best to view them on a continuum, as depicted here. Where on the continuum would you place the United States? Canada? North Korea? What do you think is the most effective economic system?
Most economies fall in between a pure market and a pure command economy on the continuum
