THE THREE TYPES OF THE THREE TYPES OF ECONOMICECONOMICSYSTEMSSYSTEMS

INTRODUCTIONINTRODUCTIONWe all need goods and services:We all need goods and services:

BASIC NEEDSBASIC NEEDS – – the same in the developed societies of the same in the developed societies of the western world as they are for tribal societies in the the western world as they are for tribal societies in the remote parts of the developing world → food, water, remote parts of the developing world → food, water, shelter, clothes, warmth.shelter, clothes, warmth.

WANTSWANTS – we do not really need, but are pleasant to – we do not really need, but are pleasant to have ( a car, a phone, a microwave…) → we have to set have ( a car, a phone, a microwave…) → we have to set priorities → priorities → COMPETING WANTSCOMPETING WANTS

WANTS OR NEEDS?WANTS OR NEEDS?

THE FUNCTION OF THE FUNCTION OF ECONOMYECONOMY

allocate resources (land, labour, machinery, capital, etc.) allocate resources (land, labour, machinery, capital, etc.) which are scarce amongst unlimited wantswhich are scarce amongst unlimited wants

solve basic economic problem:solve basic economic problem:

WHAT SHOULD BE WHAT SHOULD BE PRODUCED?PRODUCED?

HOW SHOULD IT BE HOW SHOULD IT BE PRODUCED?PRODUCED?FOR WHOM SHOULD FOR WHOM SHOULD

IT BE PRODUCED?IT BE PRODUCED?

WHO CAN MAKE THESE DECISIONS?WHO CAN MAKE THESE DECISIONS?tthe governmenthe government

tthe market she market syystestemmbbothoth

WHO AND WHY?WHO AND WHY?

Who Who makesmakes economic economic decisionsdecisions? ? Who Who owns resourcesowns resources? ? Who Who provides goods and servicesprovides goods and services? ?

Why?Why?

READING – READING – THE THREE THE THREE TYPES OF ECONOMIC TYPES OF ECONOMIC

SYSTEMSSYSTEMS, RB p 30, RB p 30I Read the text and find out the answers to I Read the text and find out the answers to

the questions from the previous slide.the questions from the previous slide.

II Make notes on the text with the help of the II Make notes on the text with the help of the table on p 31.table on p 31.

READING, RB p 30 – DO YOU READING, RB p 30 – DO YOU REMEMBER THE ANSWERS?REMEMBER THE ANSWERS?

MARKET ECONOMY MARKET ECONOMY resources are a________ by the market mechanism (s________ and d________) stimulates c________ → lower costs, a wider c________of goods and services and a better quality for c________ the role of government is l________: provides p_______, national d________ and j________ and ensures a l________ p________ f________ (fair competition)

ADVANTAGES AND ADVANTAGES AND

DISADVANTAGESDISADVANTAGES competition makes the competition makes the

economy more economy more ee________________ better better qq________ products ________ products

at lower costsat lower costs some goods and services some goods and services

are not are not pp________ by private ________ by private

firms firms only interested in making a p________ may sacrifice p________ interest in exchange for lower c________

COMMAND ECONOMY – DO YOU COMMAND ECONOMY – DO YOU REMEMBER THE ANSWERS?REMEMBER THE ANSWERS?

the government the government pp________, ________,

oo________ and ________ and cc________ ________

the production processthe production process

production of production of ss________ ________

goods with little goods with little vv________ ________

and choice for consumersand choice for consumers

rr________ belong to the ________ belong to the

statestate

goods and services are goods and services are

dd________ to consumers by ________ to consumers by

the statethe state

ADVANTAGES ANDADVANTAGES ANDDISADVANTAGESDISADVANTAGES more equal distribution more equal distribution of of ww_______ and _______ and ii______________ production is for production is for nn_______ rather than for _______ rather than for profitprofit people tend to be less people tend to be less mm_______ to work _______ to work efficientlyefficiently the the ss_______ of living is _______ of living is often loweroften lower

GROUP THE FOLLOWING GROUP THE FOLLOWING EXPRESSIONS:EXPRESSIONS:

government interferencegovernment interference privately-owned companiesprivately-owned companies market mechanismmarket mechanism market reliancemarket reliance state-owned companiesstate-owned companies laissez-faire laissez-faire government-run businessgovernment-run business central planning systemcentral planning system privately-run companies privately-run companies government interventiongovernment intervention USSRUSSR

PLANNED ECONOMY vs. PLANNED ECONOMY vs. MARKET ECONOMYMARKET ECONOMY

government government i__________i__________

central p_________central p_________ s__________-owneds__________-owned

companiescompanies government government

i__________i__________ U__________U__________

marketmarket m_________m_________

market market r_________r_________

p_________-ownedp_________-owned

companiescompanies

privately-r_________privately-r_________

companiescompanies

l_________-fairel_________-faire

PLANNED ECONOMY vs. PLANNED ECONOMY vs. MARKET ECONOMYMARKET ECONOMY

government government interferenceinterference

central planningcentral planning state-owned state-owned

companiescompanies government government

interventionintervention USSRUSSR

marketmarket mechanismmechanism

market market reliancereliance

privately-owned privately-owned

companiescompanies

privately-run privately-run

companiescompanies

laissez-fairelaissez-faire

MIXED ECONOMYMIXED ECONOMY

PUBLIC SECTOR VS. PRIVATE SECTORPUBLIC SECTOR VS. PRIVATE SECTOR

Who provides goods and services?Who provides goods and services?

Why? (What is their interest?)Why? (What is their interest?)

What do the two sectors consist of? What do the two sectors consist of?

MIXED ECONOMY – DO YOU MIXED ECONOMY – DO YOU REMEMBER THE ANSWERS?REMEMBER THE ANSWERS?

some resources are some resources are

allocated by the allocated by the gg_________ _________

(the (the pp_________ sector) and _________ sector) and

the rest by the the rest by the mm_________ _________

(the (the pp_________ sector)_________ sector) the state provides the state provides

a a mm_________ standard of _________ standard of

living for those unable to workliving for those unable to work

the public sector provides the public sector provides

pp________ goods and services ________ goods and services

(decided by the (decided by the cc________ or ________ or

local local gg________)________)

public goods are usuallypublic goods are usually free if paid for by free if paid for by tt________________ the private sector provides the private sector provides pp________ goods and ________ goods and services services aa________ by the________ by themarket systemmarket system private firms own the private firms own the mm________ of production ________ of production and make production and make production dd__________________ the government should the government should ensure ensure ff_________ _________ competition in the private competition in the private sectorsector

MIXED ECONOMYMIXED ECONOMY

PRIVATE SECTORPRIVATE SECTOR PUBLIC SECTORPUBLIC SECTOR

private goods and services are private goods and services are sold through the market sold through the market mechanismmechanismproduction decisions are made production decisions are made by firms in response to by firms in response to consumersconsumersprivate ownersprivate ownersmaking a making a profitprofitprofitable businessesprofitable businesses

merit goods (education, health) merit goods (education, health) and public goods are decided by and public goods are decided by tthe government he government or or local local authoritiesauthorities (e.g. municipalities, (e.g. municipalities, counties)counties)Care for Care for socially important socially important issues of public interestissues of public interest (e.g. (e.g. protecting environment, protecting environment, consumers)consumers)Less profitable and Less profitable and unprofitableunprofitable businesses businesses

VOCABULARY – RB, p 31 & 32VOCABULARY – RB, p 31 & 32

Do the tasks III, IV, V & VI in the Resource Do the tasks III, IV, V & VI in the Resource Bank.Bank.

EITHER... OR...EITHER... OR...

FREE MARKET FREE MARKET ECONOMYECONOMY

COMMAND ECONOMY COMMAND ECONOMY (PLANNED (PLANNED ECONOMY)ECONOMY)

WHOWHO

MAKES MAKES ECONOMIC ECONOMIC DECISIONS?DECISIONS?

The market: The market:

supply and demand supply and demand

sellers - buyerssellers - buyers

producers - consumersproducers - consumers

The stateThe state

WHY?WHY? to allow competition and to allow competition and thus make the economy thus make the economy more efficientmore efficient

to provide better quality to provide better quality products at lower costsproducts at lower costs

to redistribute wealth in to redistribute wealth in the country more fairlythe country more fairly

to care for public needsto care for public needs

... OR BOTH...... OR BOTH...FREE MARKET FREE MARKET ECONOMYECONOMY

(FREE (FREE ENTERPRISE ENTERPRISE ECONOMY)ECONOMY)

COMMAND COMMAND ECONOMYECONOMY

(PLANNED (PLANNED ECONOMY)ECONOMY)

MIXED MIXED ECONOMYECONOMY

WHOWHO

MAKES MAKES ECONOMIC ECONOMIC DECISIONS?DECISIONS?

The market: The market: supply and demand supply and demand sellers-buyerssellers-buyersproducers –producers –consumersconsumers

The stateThe state Both the market Both the market and the stateand the state

WHY?WHY? to allow competition to allow competition and make the and make the economy more economy more efficientefficientto provide better to provide better quality products at quality products at lower costslower costs

to redistribute to redistribute wealth in the wealth in the country more country more fairlyfairlyto care for to care for public needspublic needs

To benefit from To benefit from both economic both economic systemssystems

TYPES OF ECONOMIES – TYPES OF ECONOMIES – LET’S RECAP!LET’S RECAP!

PLANNEDPLANNED FREE MARKETFREE MARKET MIXEDMIXED_____________ __________________________ __________________________ __________________________ __________________________ __________________________ _____________

Planned economy is an economy in whichPlanned economy is an economy in which ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Free market economy is an economy in whichFree market economy is an economy in which ______________________________________________________________________________________________________________________________________________________________________________________________________________________________

Mixed economy is an economy in whichMixed economy is an economy in which ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

HOW DO THESE CARTOONS HOW DO THESE CARTOONS RELATE TO DIFFERENT TYPES RELATE TO DIFFERENT TYPES

OF ECONOMIC SYSTEMS?OF ECONOMIC SYSTEMS?

MARKET OR CAPITALIST MARKET OR CAPITALIST ECONOMYECONOMY

ADVANTAGES ☺ADVANTAGES ☺ DISADVANTAGES DISADVANTAGES ☹☹

______ people are able to be productive and make great ______ people are able to be productive and make great profits which may result in profits which may result in greater innovationsgreater innovations and and efficiencyefficiency because of because of competitioncompetition

______ What happens to the ______ What happens to the goods goods and and servicesservices which do which do not make instant profit (e.g. education, health care...)?not make instant profit (e.g. education, health care...)?

______ the price system helps to match ______ the price system helps to match demand and supplydemand and supply so shortages and surpluses are avoidedso shortages and surpluses are avoided

______ people spend too much money on unnecessary ______ people spend too much money on unnecessary things → things → consumerismconsumerism, and not enough on , and not enough on merit goodsmerit goods which have long-term benefitswhich have long-term benefits

ADVANTAGES ☺ADVANTAGES ☺ DISADVANTAGES DISADVANTAGES ☹☹

______ people are able to produce and consume whatever ______ people are able to produce and consume whatever they can afford → they can afford → wider choice of goods and serviceswider choice of goods and services, , lower costs and better quality for lower costs and better quality for consumersconsumers

______ manufacturers could ignore the safety of the ______ manufacturers could ignore the safety of the workers, environmental issues (pollution) and go only after workers, environmental issues (pollution) and go only after profitprofit

______ there is less ______ there is less bureaucracybureaucracy because the because the government government has no part to playhas no part to play

______ ______ unequal distribution of wealth and incomeunequal distribution of wealth and income → some → some people are becoming too powerful and rich → greater social people are becoming too powerful and rich → greater social differencesdifferences

ADVANTAGES OR ADVANTAGES OR DISADVANTAGES?DISADVANTAGES?

ADVANTAGES OR ADVANTAGES OR DISADVANTAGES?DISADVANTAGES?

PLANNED OR COMMAND PLANNED OR COMMAND ECONOMYECONOMY

ADVANTAGES ☺ADVANTAGES ☺ DISADVANTAGES DISADVANTAGES ☹☹

______ ______ the distribution of wealth and incomethe distribution of wealth and income is more equal is more equal → no individual can become very rich→ no individual can become very rich

______ demand and supply are disregarded → ______ demand and supply are disregarded → shortages of shortages of goods and servicesgoods and services

______ production is for ______ production is for needneed rather than for rather than for profitprofit

______ low quality of goods and sevices because of no ______ low quality of goods and sevices because of no competitioncompetition

______ ______ unemployment unemployment can be avoided because the state can be avoided because the state owns and controls owns and controls the means of productionthe means of production

ADVANTAGES ☺ADVANTAGES ☺ DISADVANTAGES DISADVANTAGES ☹☹

______ ______ standard of livingstandard of living is usually lower compared with is usually lower compared with countries which use other types of economic systemscountries which use other types of economic systems

______ the state can redistribute profit to provide ______ the state can redistribute profit to provide benefitbenefit for for all the peopleall the people

______ government can control ______ government can control the working conditionsthe working conditions to to make them safe for the workersmake them safe for the workers

______ no private ______ no private monopoliesmonopolies (where one firm controls (where one firm controls most of the output and the market share)most of the output and the market share)

______ no ______ no motivation motivation on the part of the workerson the part of the workers

ADVANTAGES OR ADVANTAGES OR DISADVANTAGES?DISADVANTAGES?

Which of these are command Which of these are command economies today?economies today?

Cuba, North Korea and LaosCuba, North Korea and Laos

WHAT DOES THE FUTURE WHAT DOES THE FUTURE HOLD FOR US?HOLD FOR US?