Economic Systems

The Three Key Economic Questions1.

1. What goods and services should be produced?

2. How should goods and services be produced?

3. Who consumes goods and services?

Command Economy (Centrally Planned)

PROS

• Low unemployment.

• Less class distinction.

• Basic needs are met.

CONS

• Government owns the factors of production.

• Little consumer choice.

• Quantity not quality.

• No incentive for the workers.

• Sacrifice individual freedoms.

What does this photo say about a command economy?

Incentives: an expectation that encourages people to behave a certain way.

List two incentives in your life.

1.

2.

Market Economy (Free Market)PROS

• Individuals own factors of production.

• Voluntary exchange.

• Encourages growth and specialization.

• Incentive/competition-profit.

CONS

• Large gap in the distribution of wealth.

• Booms and busts in the economy.

• Does not provide for things the market does not address.

• Ex. National Defense, Police, School, Parks.

The Invisible Hand

Mixed Economy

PROS• Government regulations

= consumer protection. FDA

• Property rights, patents• Taxes: provide social

benefits.• National Defense,

Police, Schools, Parks.• Taxes: “Safety net” for

those who cannot provide for themselves.

CONS• Too much regulation

inhibits growth.

• Encourage social dependency on government programs.

• When, where, and what extent should government step in.

Championship Rock, Paper, Scissors…..Lets see the economic systems in action!

Time for a play

What if ……………………..I love

command economies!

I love free market

economies!

Checking For Understanding(Command, Market, or Mixed)

• The regulations government provide can be looked at as a positive because they can protect the consumer.

Mixed

• There is little consumer choice.

Command

• Quantity not quality.

Command

• Too much regulation might inhibit growth.

Mixed

• The individual owns the factors of production.

Market

• Sacrifice individual freedoms.

Command

• Things not provided in the market are not addressed.

Market

• The rich can get richer.

Market

• One might work harder while the other who slacks off gets the same pay.

Command

• Your tax money allows for the building of things not addressed in the market.

Mixed

The Invisible Hand: Self-interest and competition work together to regulate the marketplace. Adam Smith, The Wealth of Nations 1776

* In a sales transaction, buyers and sellers consider only their self-interest, which is the motivating force behind the free market.

Buyers

Incentive

Sellers

“Get a good deal” “Make Profit”

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