Fundamentals of a Market Economy

ECONOMIC SYSTEMSECONOMIC SYSTEMSIs the way a society uses its scarce resources to satisfy its peoples unlimited wantsTraditional EconomyWhere families, clans, or tribes make economic decisions based on customs & beliefs that have been handed down from generation to generationGoal is survivalEveryone has a set roleMen are hunters & herdersWomen cook, tend crops, raise childrenYoungest help parents & learn skillsGood of group/society is greater than individualTraditional Economy Clearly answers the 3 economic questions

Little disagreement over economic goals & roles They resist change b/c they are based on tradition & custom

Prevent people from doing what they want

Lower standard of livingCommand EconomyGovernment decides what goods and services will be produced, how they will be produced, and how they will be distributed Government officials (Central planners) consider the resources & needs of the country; distribute those resources according to their judgmentGovt usually owns the means of production

Pros & Cons of Command EconomiesPROS:

Seek to provide for everyoneLeaders use the nations resources to produce items that may not make money in a market economy

CONS:

Workers have little motive to workIndividual rights are under the needs of stateCentral planners have little understanding of local conditions (great suffering of lower class)Shortages are commonWhy are consumer goods often in short supply in a command economy?Because they often set prices well below that of a market economy.

Why do these economies often fail?Because of the human suffering that often goes hand in hand with command economies.

In a Communist economic system, the ____________________ owns the means of production.Workers get their ________________ from the state, which tend to be low because the state is not worried about making a _________________, just ensuring the basic needs of its peopleThe government sets the prices of ___________________. They typically set them _________ so that the masses can afford them. GOVERNMENTWAGESPROFITGOODS & SERVICESLOWDue to _________ wages and getting paid regardless of worker _________________________, there is little _______________________ to work hard. Due to low prices of goods and services and low worker productivity, ______________ of goods/services tend to low, therefore resulting in _______________________.LOWPRODUCTIVITYINCENTIVESUPPLYSHORTAGESAlso, due to _________ wages, there is little incentive for people to go on to ________________ for advanced degrees. This leads to a shortage of ________________, ______________, _______________, etc.These shortages contribute to human suffering. There is a shortage of ___________, ___________________, toiletries, etc.LOWCOLLEGEDOCTORSLAWYERSTEACHERSFOODMEDICINEFundamentals of a Market EconomyMarket EconomyBased on supply and demand, not government directivesConsumers drive the economyProducers decide what goods/services they will offerFundamentals of a Market EconomyPrivate PropertyConsumer SovereigntySpecializationProfitCompetitionVoluntary ExchangeGovernment InvolvementCircular Flow Modelwww.classzone.com Page 53Adam Smith vs. Karl MarxCapitalism

1723 1790

The Wealth of Nations

Laying the foundation for modern economics

Alexander HamiltonKarl MarxDefenders/critics of capitalism

Nation would be wealthier w/free tradeInvisible hand guides the market placeCommunism/Socialism

1818 1883

The Communist Manifesto (1848)Das Kapital

Laid the foundation for socialist economic theory

Russian Revolution 1917Chinese Revolution 1949

Tension between worker & owner would lead to revolt & create a new classless society Onion TheoryMixed Economy An economic system that has elements of traditional, command, and market economies

Most commonTrend 1: Change in OwnershipNationalizeMeans to change from private ownership to government or public ownership

Privatize Means to change from government or public ownership to private ownershipPUBLIC SECTORThe public sector, sometimes referred to as the state or the government sector, is the part of the economy that deals with the production, ownership, delivery and allocation of goods and services (also known as PUBLIC GOODS) by the government, paid for by taxes for citizens, whether national, state, or localPRIVATE SECTORThe private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals, usually as a means of enterprise for PROFIT, and is not controlled by the state. You Have the following to do!Anyone not going to be here tomorrow, you have to take test today or you will get a zero.Turn in Spirals #1 & #2Turn in Globalization in you LifeWork on vocab and review sheet and if time permits Spiral #3Trend 2: Increasing Global TiesGlobal EconomyAll the economic interactions that cross international boundaries

Why the surge?Opening up of the worlds markets to tradeDevelopment of faster, safer, & cheaper transportationCross-border business partnerships

Russia: From Communism to Capitalismhttp://www.pbs.org/frontlineworld/stories/moscow/