Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Economic Systems & Schools of Thought

2,917 views

Published on

Published in: Technology, Economy & Finance
  • Be the first to comment

Economic Systems & Schools of Thought

  1. 1. ECONOMIC SYSTEMS,SCHOOLS OF THOUGHT, MARKET FAILURES AND THE CANADIAN ECONOMY Introduction to Economics 1
  2. 2. Economic Systems• Who owns the resources? (Production)• How are the resources allocated? (Distribution) • What to produce? • How to produce? • For whom to produce?• Four combinations of ownership and distribution… 2
  3. 3. Four Economic Systems1. Planned or Command Economy (Socialism) • State ownership & allocation of resources • Planned quota system • No free markets • Centralized planning2. Market Socialism • The state owns the resources and means of production • But the products are sold to consumers in free markets 3
  4. 4. Four Economic Systems3. State Capitalism • Private ownership of resources • But allocation is by the state • No markets • Distribution based on government’s plan • Planned quota system4. Market Economy (Capitalism) • Resources are owned by the private sector • Allocated through free markets • No government intervention/ownership 4
  5. 5. Canada: A Mixed Economy• Private ownership and distribution in markets  most things• State ownership and distribution  education 5
  6. 6. Canada: A Mixed Economy• Public ownership with market distribution  hydro• Private ownership but state distribution  eggs/dairy 6
  7. 7. Adam Smith (1723-1790)• Classical and neoclassical economics  Free enterprise economy; market economy; capitalism  Focus on the long run• Invisible hand  Self-regulation  No shortage or surplus  Self-interest vs. social welfare• Laissez-faire• Say’s law 7
  8. 8. Adam Smith (1723-1790)• Prices and wages are flexible and adjust quickly• Efficiency  Getting the most out of society’s scarce resources  Maximizing social welfare• Main condition: competition  No one should have control over the prices  Many buyers and sellers 8
  9. 9. John Maynard Keynes (1883-1946)• Keynesian and neo-Keynesian economics  Focus on the short run  Prices and wages are sticky: slow to adjust  Takes long for surpluses and output gaps to close  Need for government intervention  Emphasize (government) expenditure 9
  10. 10. Karl Marx (1818-1883)• Marxism and communism  Competitive markets favour a minority over the majority  The poor becomes more disadvantaged and the rich becomes more privileged  The proletariat should own the added value of their work  The government should own and run the means of production to ensure equal distribution of wellbeing 10
  11. 11. Why Government Intervention?1. Protect consumers • High prices  Monopolies  Price fixing  Concentration • Sub-standard products • Hazardous products • Restriction or prohibition of certain products • Wrong information  Advertisements 11
  12. 12. Consequences of Concentration• Higher prices• Lower quantity• Fewer choices• Inferior service/ quality• Political influence 12
  13. 13. Why Government Intervention?2. Protect workers • Minimum wage • Legal age • Maximum work week  Overtime pay • Safe working environment • Unions • Discrimination 13
  14. 14. Why Government Intervention?2. Protect workers (continued) • Benefits  Statutory holidays  Vacations  Fringe benefits  Parental leaves 14
  15. 15. Why Government Intervention?3. Regulate problems created by the system • Unemployment • Inflation • Poverty • Inequitable distribution of income4. Provide social services equitably • Health care • Education 15
  16. 16. Forms of Government Intervention1. Direct ownership/provision • Infrastructure • Crown corporations2. Economic policies • Fiscal policy  Taxes & subsidies • Monetary policy • Trade policy • Incomes policy 16
  17. 17. Forms of Government Intervention3. Laws and regulations • Set standards • Licenses • Prohibitions/restrictions • Regulatory agencies 17
  18. 18. Market Failure• A market cannot exist for certain goods/services•No one would want to supply them • Ex. a lighthouse• Two conditions to analyze:1. Rivalry2. Excludability  Four combinations… 18
  19. 19. Market Failure• Problem with non-rivalry (club goods): • How much to charge? • High fixed cost, but only once  Solution: subscription/membership fee• Problem with non-excludability (common pool resources): • Free-rider problem • Tragedy of the commons  Solution: auction to a private owner 19
  20. 20. Market Failure• Public goods: both non-rival and non-excludable • Who would provide it? • How to finance?  Taxation  Intellectual property rights (patents, copyrights)• Externalities • Positive/negative  Pollution  Solution: internalize the costs → tax 20

×