economic systems12

7/30/2019 Economic Systems12

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Any factor that enables or motivates aparticular course of action, or counts as a

reason for preferring one choice to thealternatives


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You just won the power ball lottery jackpot of $50,000,000.

What do you buy with your money? With a partner, make alist of everything you would do with the money.


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Wants-something you would like to have inorder to feel better about how you live


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Needs-something you have to have in order tolive


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Scarcity is the unlimited human wants andneeds with limited resources

Scarcity is the fundamental problem in

economics In society, we cannot have everything we

want

Therefore we must make choices as aindividuals and as a society based on

incentives, costs and benefits analysis, etc.


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Opportunity Cost: the value of the next bestalternative that you gave up.

I decide to go to college right after high school asa full time student.

What is my opportunity cost?


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Text Book Definition: The study of howpeople use limited resources to produce and

distribute goods and services and satisfyunlimited wants and needs.

Simple definition: study of people trying toget what they want and need


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Scarcity forces all

countries to answerthese 3 questions

Scarcity leads to

conflict over policy

3 Basic QuestionsWhat to

produce?

How to

produce it?

Whom to

produce it for?

ScarcityUnlimited

WantsLimited

Resources


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Society must decide whatto produce withits limited resources.

For example, society may have to choose

whether to produce goods for defense orservices for poor people.

Guns vs. Butter model

Boom Boxes

OR

MP3 Players


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What does the PPF

show?


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Society must decide howto produce.For example, should weaccept more pollution fromfactories in exchange forgreater output of products?

Should we automateassembly at the expense ofjobs?

Henry Fords moveable

assembly line


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Society must decidefor whom toproduce.

Who will receive the goods and services?

In the United States, most goods andservices are distributed through theprice system.

Whom do the makers ofelectronics target?


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No Conflicts arise in all economies


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3 Basic Questions

What to produce?

How to produce it?

Whom to produce it for?

Market Command Traditional Mixed


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Also known as Capitalism, Free Market, orFree Enterprise

Defined: ownership of resources and meansof production by individuals, basically free ofgovernment control in deciding goods andservices produced

Ownership of Resources: Productiveresources privately owned and operated


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Allocation of Resources:Resources are obtained

through the lure of profits inthe market Role of Government:

Government only tries to makesure there is some competitionand provides some publicgoods


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Goals: Profit for individuals, people are motivated by

economic rewards Methods: Competition, supply and demand

Characteristics: Private property, specialization,minimal government regulation

Political System: Democracy/Parties Current World Examples:

Switzerland Canada Australia Chile Argentina South Africa


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Also called a planned economy Defined: An economy in which all of the

major economic questions are answered by acentral authority Ownership of Resources: All Productive

resources are owned and operated by thegovernment


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Allocation of Resources: Central planninggroup directs all resources

Role of Government: Government makes alldecisions


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Goals: Equal distribution of income Methods: Revolution to gain control, no opposition

forces allowed Characteristics: no private property, one political

party Political System: Totalitarian

Current and Former World Examples:

Cuba North Korea China Former Soviet Union Iraq


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Defined: An economic system that doesthings as it always has

Ownership of Resources: All productiveresources are owned by families

Allocation of Resources: Based of customsand traditions within the tribe

Role of Government: Tribes play some role inmaking economic decisions


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Goals: Keep things how they have always been Methods: Customs and traditions passed down

through family lineage Characteristics: Children follow in parents

footsteps, lack of economic growth Current Examples: Aborigines Australia Political System: Tribal Organizations

Mbuti Pygmies of the Congo Kung Bushmen of Africa


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Strengths: Able to change gradually Individual freedom for all Lack of government

Interference Variety of goods and

services High consumer

satisfaction Promotes economic

freedom and growth

Weaknesses: Does not protect the

young, sick, old whocannot work

Market failures happenleading to lots of upsand downs

Doesnt promote

economic security,equity, or efficiency aswell as other systems


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Strengths: Things can be

changeddramatically in ashort time

Promotes economic

security, efficiency,and equity

Weaknesses: Does not meet the needs and

wants of consumers Lacks effective incentives to

get people to work Needs a large bureaucracy

which consumes resources Inflexible for day-to-day

changes

New and different ideasdiscouraged, people cant beindividuals

Doesnt promote: economicgrowth or freedom


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Strengths: All members of the

community havedefined roles Stable, predicable,

and continuous life Promotes:

economic securityand equity

Weaknesses: Discourages new

ideas or ways of

doing things Stagnation and

lack of progress

Doesnt promoteeconomic growthor freedom


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Most countries in the world are a blend ofdifferent elements

They are called mixed or combinationsystems


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Defined: A system in which economicquestions are answered by a combination of

command and market methods Ownership of Resources: Basic utilities, other

important resources government owned andoperated; the rest privately owned andoperated


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Allocation of Resources: Government planswhere resources go for key industries

Role of Government: Government directs itsplans for the biggest, key industries only


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Goals: Equal access to services Methods: High Tax Rates Characteristics: Limited competition, lots of

government planning, government: health,

education, welfare Current World Examples:

England Germany Sweden Egypt

France

Italy Hungary Mexico Political System: Socialist democracy, political parties voted in


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Strengths and Weakness vary by country Generally these countries experience the

same ups and downs that market economieslike the United States experience

economic systems12

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