The question that each economy faces is whether they want prices, quantities, distribution of goods and services, and distribution of income to be determined by the private sector or the public sector.

Private sector – made up of consumers and businesses.

Public sector is the government. There are different levels of government : local, state and federal.

Some services are produced by both private and public agencies such as education, trash collection, and security.

The groups in the economy are consumers, businesses, and government.

Players Goal Examples

Consumers Maximize personal utility

Some people maximize their utility (happiness) by purchasing material goods. Some people maximize their utility by giving away their time and money to charity/ missions.

Businesses Maximize long-run profit

http://money.cnn.com/magazines/fortune/fortune500/2011/performers/companies/profits/

Businesses maximize profit to make owners happy!

Government

Maximize social welfare

http://www.edd.cahwnet.gov/Unemployment/Federal_Unemployment_InsuranceExtensions.htmGovernment’s goal is to make the masses happy, not just one group of people or businesses.

The answers to these questions will determine the type of economic system the economy will pursue.

How much should the economy produce?

• It depends on the resources it has available

• The resources are land, labor, capital and entrepreneurial spirit. The goal is to use each of the resources efficiently.

The Theory of Comparative Advantage

A society should produce goods and services that complement its competitive edge.

Corn is not grown in Alaska, but fisheries are prospering.

             • On the arable land, which is only 11% of Japan's total land area, the population density is

among the highest in the world.

• 145,833 sq mi in Japan – 15,000 square miles of farmable land

• 9,600,000 square acres

 • Census of Agriculture • Contact NASS Customer Service, 1-800-727-9540.

1997, 2002 and 2007 Census of Agriculture1997 2002 2007

Approximate total land area (acres)

2,262,462,020 2,263,960,501 2,260,994,361

Total farmland (acres)

954,752,502 938,279,056 922,095,840

Percent of total land area

42.2% 41.4% 40.8%

Cropland (acres) 445,324,765 434,164,946 406,424,909

Percent of total farmland

46.6% 46.3% 44.1%

Percent irrigated 11.5% 11.6% 12.7%

By the most efficient companies.

Sometimes by the government.

In a capitalistic system the best companies survive, the weaker companies go out of business.

YEAR BOT 20

MID 20

TOP 20

TOP 5

2010 116,011

3.9 8.8 13.9 20.2 53.5 23.5

2005 114,384

3.4 8.6 14.6 23 50.4 22.2

2000 108,209

3.6 8.9 14.8 23 49.8 22.1

1990 94,312 3.8 9.6 15.9 24 46.6 18.5

1970 64,778 4.1 10.8 17.4 24.5 43.3 16.6

In the US the top 20 percent of wages earners make 53 percent of the income.

The bottom 20 percent of the wage earners make 3.9 percent of the money.

In a Communist Society, theoretically every one would make the same amount. Their would be no rich or poor. Yet, there would also be no incentive to work hard because everyone makes the same amount.

Country Agriculture

Industry

Service

United States

0.9% 20.4% 78.6%

South Korea

3.3% 40.7% 56%

Indonesia 13.1 % 46% 41%

Businesses change to earn profit. Cell phones have gotten smaller, batteries last longer, service has improved. Why? Because companies want to earn profit, and these qualities attract consumers!

Music is now played on an MP3 or I-pod. Why? Because companies want to earn

profit and these smaller units attract consumers.

• Command • governments determines

prices and quantities produced

• Capitalistic • free market interaction

between buyers and sells determines prices and quantities produced

• Mixed • a mix where in some

markets the government is a buyer, regulator, or producer.

Even with a free market capitalist system there are times when the system does not operate in a manner that best suits the overall population. These occurrences are known as free market breakdowns. Some of these free market breakdowns are on the “Free Market Breakdown” page on the website.

Some goods and services are produced by private companies.

Some goods and services are produced by the government.

The trend in the US is for more government. There are pros and cons of more government. The biggest cons are incentive to work and large deficits. The pros are stability and equality among citizens.

http://anepigone.blogspot.com/2008/03/government-spending-as-percentage-of.html

http://www.usgovernmentspending.com

http://www.heritage.org/index/Ranking.aspx

Government percent of overall spending

Free Market Breakdowns