Econ Ch2 Economic Systems

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Econ Ch2 Economic Systems

  1. 1. Chapter Economic Systems 2
  2. 2. Chapter Objectives <ul><li>Students will learn: </li></ul><ul><li>The basic questions that any economic system must answer. </li></ul><ul><li>The basic varieties of economic systems. </li></ul><ul><li>How the 3 basic types of economic systems differ in their answers to the fundamental economic questions. </li></ul><ul><li>How the theoretical models of economic systems actually work in the real world. </li></ul>
  3. 3. Economic Systems <ul><li>What is an economic system ? </li></ul><ul><li>System=order, structure, rules </li></ul><ul><li>Economic=factors of production, resources </li></ul><ul><li>Economic system =the way a country decides to use its resources </li></ul>
  4. 4. The Basic Economic Questions <ul><li>What to produce </li></ul><ul><ul><li>ALLOCATION OF RESOURCES </li></ul></ul><ul><li>How to produce </li></ul><ul><ul><li>PRODUCTION & EFFICIENCY </li></ul></ul><ul><li>For whom to produce </li></ul><ul><ul><li>WHO GETS WHAT? WHY? </li></ul></ul>
  5. 5. Kinds of Economic Systems <ul><li>Traditional </li></ul><ul><li>Command </li></ul><ul><li>Market </li></ul>
  6. 6. Traditional Economies <ul><ul><li>Based on previous generations </li></ul></ul><ul><ul><li>Stable </li></ul></ul><ul><ul><li>No incentives </li></ul></ul><ul><ul><li>No changes / no freedom </li></ul></ul><ul><ul><li>Very rare, doesn’t exist in very many places </li></ul></ul>
  7. 7. Command Economies <ul><ul><li>Central authority makes decisions </li></ul></ul><ul><ul><li>Government owns or controls factors of production </li></ul></ul><ul><ul><li>No freedom </li></ul></ul><ul><ul><li>Controls distribution </li></ul></ul><ul><ul><li>National planners </li></ul></ul><ul><ul><li>Quick in emergencies </li></ul></ul><ul><ul><li>Examples? </li></ul></ul>
  8. 8. Market Economies <ul><ul><li>Free market/laissez-faire </li></ul></ul><ul><ul><li>Invisible hand/Adam Smith </li></ul></ul><ul><ul><li>Self-interest </li></ul></ul><ul><ul><li>Workers exchange labor for wages </li></ul></ul><ul><ul><li>Use income to buy goods & services </li></ul></ul><ul><ul><li>Decisions based on prices </li></ul></ul><ul><ul><li>Efficient approach </li></ul></ul><ul><ul><li>Poor are at a disadvantage </li></ul></ul>
  9. 9. Comparing Command & Market
  10. 10. Economic Systems in the Real World All economies are mixed.
  11. 11. Changing Economies <ul><li>More and more, countries are turning to capitalism and free markets </li></ul><ul><li>Transitional economies = </li></ul><ul><ul><li>Command Market </li></ul></ul><ul><ul><li>Creates new markets, new ideas, and new relationships </li></ul></ul><ul><ul><li>Examples? </li></ul></ul>

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