Economic Systems. The 3 Major Production Questions What to produce? How to produce? For whom to...

Economic Systems

The 3 Major Production Questions

• What to produce?

• How to produce?

• For whom to produce?

We will classify economic systems into categories, based on how each of them attempts to answer these three questions.

Traditional Economy

• The answers to the three major production questions are dictated by ritual, habit, or custom.

Examples of Traditional Economies

• Inuit tribe

• Some parts of South America

• Some parts of Africa

• Aboriginal tribes of Australia

• Some island societies

Traditional Economies

Advantages? Disadvantages?

Command Economy

• The answers to the three major production questions are given by some strong central authority (i.e. the government)

• Communism – an economic system in which all factors of production are the property of the state.

Examples of Command Economies

• Cuba

Examples of Command Economies

• North Korea

Command Economies

Strengths Weaknesses

Market Economy

• Businesses and individuals act in their own best interest to answer the three major production questions.

• Capitalism – an economic system in which individuals and businesses compete, with a minimum of government interference

• “Laissez-Faire”

Market Economies

Strengths Weaknesses

Mixed Economies

• Mixed-Market

• Socialism

• Economies in Transition

Total Government

Control

No Government

Control

Communism Socialism Mixed-Market Capitalism

Little Economic Freedom

Total Economic Freedom

Rank Country Overall Change

1 Hong Kong 90.0 +0.3

2 Singapore 87.1 -0.2

3 Australia 82.6 +0.4

4 Ireland 82.2 -0.3

5 New Zealand 82.0 +1.2

6 United States 80.7 -0.3

7 Canada 80.5 +0.3

8 Denmark 80.0 +0.4

9 Switzerland 79.4 -0.1

10 United Kingdom 79.0 -0.5

2009 Index of Economic Freedom:

The Top 10

http://www.heritage.org/Index/

2011 Index of Economic Freedom:

Bottom 5

Role Players in the Mixed-Market Economy

• Consumers

• Producers

• Government• Consumer• Producer• Protector• Regulator• Provider

7 Economic & Social Goals of Capitalism

1. Economic Freedom

2. Economic Equality

3. Economic Security

4. Economic Growth

5. Economic Efficiency

6. Price Stability

7. Full Employment

Communism

Communism: How/Why does it rise?

How/Why does it fall?

Capitalism Communism

CapitalismCapitalism CommunismCommunism

““From each according From each according to his ability, to his ability, to each to each according to his according to his needs!needs!” ”

–Karl Marx

»Critique of the Gotha Programme, 1875

“As for me, I am not a Marxist.”

Karl Marx

Why Doesn’t It Work?

• Incentive Problem– Average Test Scores Example

• Coordination Problem

• In one word, why doesn’t it work?

When CAN It Work?

Characteristic Capitalism Communism

Primary Economic Goal

Basis of Economy

Resource Allocation

Government Planning

Ownership of F.O.P.

Motivation

Economic Freedom

Economic Equality

CompetitionCooperation /

Collectivization

Supply & Demand

Government Planning

Private Property Public Property

Profit MotivePatriotism: The

Good of Community

Characteristics of Free Enterprise Capitalism

• Economic Freedom

• Voluntary Exchange– Consumer Sovereignty: The consumer drives

the market– “The customer is always right!”

• Private Property Rights– The Tragedy of the Commons

• Profit Motive

Economic Systems. The 3 Major Production Questions What to produce? How to produce? For whom to...

Documents

Transcript of Economic Systems. The 3 Major Production Questions What to produce? How to produce? For whom to...

Comparative Economic Systems - UMasscourses.umass.edu/econ773/Slides1.pdf · Approaches to comparative economic systems Market systems Economic planning Capitalism 2. ... economic

Chapter 2. Economic Systems Economic systems – way nations determine how to use resources All economic systems answer three basic questions: what to produce,

Essential Question: How do economic systems answer the questions of what, how, and for whom to produce?

Public Debt and Economic Growth – Economic Systems Mattercege/Diskussionspapiere/DP281.pdf · Public Debt and Economic Growth – Economic Systems Matter ... economic systems that

Ch.2sec.1 Economic System & Economic Tools The three questions that all economic systems must answer. What should the economy produce? How should this.

Cells. Levels of Organization Cells produce tissues Tissues produce organs Organs produce organ systems Organs systems produce organisms Levels of Organization.

Economic Systems Chapter 2. Scarcity Choices Three Basic Questions WHAT to Produce? HOW to Produce? FOR WHOM to Produce? Should they produce military.

Economic Analysis of Cashew Nut Marketing Among Produce ...

Economic Resources and Systems Economic Systems

Economics in Asia. All Economic Systems seek to answer the three basic economic questions 1) What to produce? 2)How to produce? 3) For whom to produce?

Economic Systems Three Basic Questions Due to scarcity, individuals, governments, and businesses, must make decisions about what to produce. The type.

Determinants of long-term economic growth Economic systems Economic policies Economic institutions Economic systems Economic policies Economic.

Economic Systems. Economic Questions What to produce?What to produce? –Allocation of factors of production How to produce?How to produce? –Methods of.

Economic Systems. All Economic Systems Must Consider the Following Questions: THE THREE BIG ECONOMIC QUESTIONS 1. What goods and services to produce?

Economic Systems. Essential Question: How do economic systems answer the questions of what, how, and for whom to produce?

Economics in Africa and Asia. All Economic Systems seek to answer the three basic economic questions 1) What to produce? 2) How to produce? 3) For whom.

Economic Systems of Europe. Basic Questions: What to produce, how to produce, for whom to produce? What to produce, how to produce, for whom to produce?

Economic Systems Chapter 16 What are economic systems?

Economic Systems Unit 2 What is an economic system? The method used by a society to produce and distribute goods and services.

Economic Systems. All Economic Systems seek to answer the three basic economic questions 1) What to produce? 2) How to produce? 3) For whom to produce?