Economics

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Economics. Chapter 2. What is an economic system?. Reflects the process or system a nation or society follows to produce goods and services. Determines who answers the 3 basic economic questions. What are the four types of economic systems?. Traditional Command Market Mixed. The Catch. - PowerPoint PPT Presentation

Transcript of Economics

Economics Economics

Chapter 2 Chapter 2

What is an economic system?What is an economic system?

Reflects the process or system a nation or society follows to produce goods and services.

Determines who answers the 3 basic economic questions.

Reflects the process or system a nation or society follows to produce goods and services.

Determines who answers the 3 basic economic questions.

What are the four types of economic systems?

What are the four types of economic systems?

1. Traditional2. Command3. Market 4. Mixed

1. Traditional2. Command3. Market 4. Mixed

The CatchThe Catch

Pure traditional, command, and market don’t exist, all economies today are mixed.

Pure traditional, command, and market don’t exist, all economies today are mixed.

Traditional Economies Features

Traditional Economies Features

Based on custom and traditionsChildren often carry on the role of

their parentsIf parents were fisherman, you will be

fishermanSharing is the main goal of these

systemsGoods and services produced are

distributed among group’s members

Based on custom and traditionsChildren often carry on the role of

their parentsIf parents were fisherman, you will be

fishermanSharing is the main goal of these

systemsGoods and services produced are

distributed among group’s members

Traditional Economies Features

Traditional Economies Features

Work to benefit everyone, rather than focus on individual needs

How are the three basic economic questions answered?

Work to benefit everyone, rather than focus on individual needs

How are the three basic economic questions answered?

Traditional - Aborigines of Australia

Traditional - Aborigines of Australia

Command Economies Features

Command Economies Features

Individuals under this system are left with little say

Pure command died out with the feudal system in EuropeKing and Queen – power and money

How are the three basic economic questions answered?

Individuals under this system are left with little say

Pure command died out with the feudal system in EuropeKing and Queen – power and money

How are the three basic economic questions answered?

Command – Middle Ages Europe

Command – Middle Ages Europe

Market Economies Features

Market Economies Features

Self Interest = impulse that drives people to fulfill their needs and wantsDo what you want, no government control

Incentive = is anything that encourages you to behave in a particular wayFinancial reward (bonus); Financial Penalty

How are the three basic economic questions answered?

Self Interest = impulse that drives people to fulfill their needs and wantsDo what you want, no government control

Incentive = is anything that encourages you to behave in a particular wayFinancial reward (bonus); Financial Penalty

How are the three basic economic questions answered?

Invisible Hand?Invisible Hand?

Adam Smith

While individuals work to meet their own needs and wants, self-interest acts as an “invisible hand” that leads them to do what is best for society

Adam Smith

While individuals work to meet their own needs and wants, self-interest acts as an “invisible hand” that leads them to do what is best for society

Mixed EconomiesMixed Economies

Combination of the 3 models previously discussed

1. Authoritarian Socialism (Communism)

2. Democratic Socialism 3. Capitalism

Combination of the 3 models previously discussed

1. Authoritarian Socialism (Communism)

2. Democratic Socialism 3. Capitalism

Authoritarian Socialism(Mixed Economy #1)

Authoritarian Socialism(Mixed Economy #1)

Close to commandCommand – King & Queen work for the

wealthyCommunism – a dictator tries to ensure

everyone is equal Limited decision making for

individualsGovernment controls or owns nearly

all factors of production

Close to commandCommand – King & Queen work for the

wealthyCommunism – a dictator tries to ensure

everyone is equal Limited decision making for

individualsGovernment controls or owns nearly

all factors of production

Authoritarian Socialism

– Totalitarian Governments

Authoritarian Socialism

– Totalitarian GovernmentsGermany, under Adolf Hitler the USSR, under Joseph StalinChina, under the Communist rule of

Mao Zedong Italy under Benito Mussolini North Korea under Kim Il Sung Syria under Hafez al-Assad Iraq under Saddam Hussein

Germany, under Adolf Hitler the USSR, under Joseph StalinChina, under the Communist rule of

Mao Zedong Italy under Benito Mussolini North Korea under Kim Il Sung Syria under Hafez al-Assad Iraq under Saddam Hussein

Democratic Socialism (Mixed Economy #2)

Democratic Socialism (Mixed Economy #2)

Considered to be the middle ground between authoritarian socialism and capitalism

Government ownership of some of the factors of production (utilities, telephone, airlines, etc.)EX. France, Sweden, Netherlands

Election of government officials

Considered to be the middle ground between authoritarian socialism and capitalism

Government ownership of some of the factors of production (utilities, telephone, airlines, etc.)EX. France, Sweden, Netherlands

Election of government officials

Capitalism (Mixed Economy #3)

Capitalism (Mixed Economy #3)

Closest to marketMarket has NO government regulations

Free to catch as many walleyes as you want

Government does enact regulations to guide business and protect citizensRegulations on FishingTaxes

Private ownership and free choice are strongly emphasized (Basis of Capitalism)

Closest to marketMarket has NO government regulations

Free to catch as many walleyes as you want

Government does enact regulations to guide business and protect citizensRegulations on FishingTaxes

Private ownership and free choice are strongly emphasized (Basis of Capitalism)

Capitalism (Mixed Economy #3)

Capitalism (Mixed Economy #3)

Individuals own factors of production and answer the 3 basic economic questions

Ex. Canada, Mexico, Japan, United States

Individuals own factors of production and answer the 3 basic economic questions

Ex. Canada, Mexico, Japan, United States

CapitalismU.S., Canada, Mexico, Japan

CapitalismU.S., Canada, Mexico, Japan

Goals of United States Economy

Goals of United States Economy

FreedomEfficiency Security StabilityEquityGrowth

FreedomEfficiency Security StabilityEquityGrowth

Goals:FESSEGGoals:FESSEG

1. Freedom-choose occupation.Business free to change and grow.Investors free to decide what to do

with their money.

1. Freedom-choose occupation.Business free to change and grow.Investors free to decide what to do

with their money.

Goals:FESSEGGoals:FESSEG

2. Efficiency- Make best use of our scarce

resources.- Can be measured by how many goods

and services a nation’s workers produce.

2. Efficiency- Make best use of our scarce

resources.- Can be measured by how many goods

and services a nation’s workers produce.

Goals:FESSEGGoals:FESSEG

3. Security-Protect members from poverty,

business failures and bank failures, acts of terrorism, and internet crimes

Individual can purchase different types of insurances.

Government promotes security through unemployment compensation, insuring bank deposits.

3. Security-Protect members from poverty,

business failures and bank failures, acts of terrorism, and internet crimes

Individual can purchase different types of insurances.

Government promotes security through unemployment compensation, insuring bank deposits.

Goals:FESSEGGoals:FESSEG

4. Stability- Strive for full employment: lowest possible level of unemployment in the country- Price stability: overall prices remain constant

4. Stability- Strive for full employment: lowest possible level of unemployment in the country- Price stability: overall prices remain constant

Goals:FESSEGGoals:FESSEG

5. Equity- Fairness- Right and wrong- All members of society share costs

and benefits.- NOT equality

5. Equity- Fairness- Right and wrong- All members of society share costs

and benefits.- NOT equality

Goals:FESSEGGoals:FESSEG

6. Growth-Increase the amount of goods and

services produced by each worker-allows consumers to increase

consumption- Increase the standard of living.

- Measured by how much the average person in that country is able to consume in a given period of time

6. Growth-Increase the amount of goods and

services produced by each worker-allows consumers to increase

consumption- Increase the standard of living.

- Measured by how much the average person in that country is able to consume in a given period of time

PrioritiesPriorities

Individuals, businesses, and the government decide which goals are most important to them.Needs and wants often conflict

Individuals, businesses, and the government decide which goals are most important to them.Needs and wants often conflict

Priorities Can ChangePriorities Can Change

1970’s : dramatic price increases encouraged many people to focus on stability

1980’s : concerns about unemployment and low productivity encouraged focus on security and growth

2013:

1970’s : dramatic price increases encouraged many people to focus on stability

1980’s : concerns about unemployment and low productivity encouraged focus on security and growth

2013:

Priorities Can ConflictPriorities Can Conflict

People have differing goalsFargo Flood residents vs.

Minneapolis residentsFargo during flood: What goals?Now?

Minneapolis: ?

People have differing goalsFargo Flood residents vs.

Minneapolis residentsFargo during flood: What goals?Now?

Minneapolis: ?

Mystery IslandMystery Island

Imagine you end up with 200 people on Mystery Island.What type of mixed economic system

would you set up? WHY?What would be your TOP 3 Economic

Goals? WHY?List 3 Economic RULES/LAWS you

would institute.

Imagine you end up with 200 people on Mystery Island.What type of mixed economic system

would you set up? WHY?What would be your TOP 3 Economic

Goals? WHY?List 3 Economic RULES/LAWS you

would institute.