Economic Economic SystemsSystems

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

An organized way An organized way of providing for the of providing for the wants and needs of wants and needs of the peoplethe people..

The way a society The way a society answers the three answers the three basic economic basic economic questions questions determines the type determines the type of economic system of economic system it has.it has.

Traditional EconomyTraditional Economy

Answers to basic questions come from Answers to basic questions come from custom, religion, ritual.custom, religion, ritual.

Examples : African Mbuti, Australian Examples : African Mbuti, Australian Aborigines, Inuits of Canada.Aborigines, Inuits of Canada.

Advantages/Disadvantages Advantages/Disadvantages of Traditional Systemof Traditional System

*Advantages : everyone knows what *Advantages : everyone knows what role to play; little uncertainty exists.role to play; little uncertainty exists.

*Disadvantages : discourages new *Disadvantages : discourages new ideas, lack of progress, lower ideas, lack of progress, lower standard of living.standard of living.

Command EconomyCommand Economy

Basic questions are answered by a central Basic questions are answered by a central government.government.

Examples : North Korea, CubaExamples : North Korea, Cuba

Advantages/Disadvantages Advantages/Disadvantages of a command economyof a command economy

Advantages : can change drastically Advantages : can change drastically in a short time; many services in a short time; many services offered at little or no cost.offered at little or no cost.

Disadvantages : does not meet Disadvantages : does not meet needs of people; no incentives; large needs of people; no incentives; large bureaucracy; new ideas bureaucracy; new ideas discouraged. discouraged.

Market EconomyMarket Economy

Basic Basic questions are questions are answered by answered by people and people and firms acting in firms acting in their own best their own best interests.interests.

Examples : Examples : United States, United States, Canada, Japan, Canada, Japan, SingaporeSingapore

Advantages/Disadvantages Advantages/Disadvantages of the Market Systemof the Market System

Advantages : can adjust Advantages : can adjust to change gradually; to change gradually; individual freedom; individual freedom; variety of variety of goods/services; lack of goods/services; lack of government government interference.interference.

Disadvantages : Disadvantages : rewards only productive rewards only productive resources; basic needs resources; basic needs not met for everyone; not met for everyone; some uncertainty.some uncertainty.

Evaluating Economic Evaluating Economic PerformancePerformance

Economic and Social GoalsEconomic and Social Goals

Economic EfficiencyEconomic Efficiency

How well How well scarce scarce resources are resources are used; keep used; keep production production costs as low costs as low as possible.as possible.

Economic EquityEconomic Equity

FairFair Distribution of Distribution of

income and wealthincome and wealth Equal opportunityEqual opportunity

Plaintiffs in class-action suit against WalMart

Economic FreedomEconomic Freedom

Freedom forFreedom for ConsumersConsumers WorkersWorkers individualsindividuals

Economic GrowthEconomic Growth

**Increasing the Increasing the production of production of goods and goods and services over services over time (GDP time (GDP growth)growth)

Economic SecurityEconomic Security

Protect Protect consumers, consumers, producers, and producers, and resources from resources from risks that exist risks that exist in societyin society

(recession, injury, (recession, injury, unemployment, unemployment, etc.)etc.)

Economic StabilityEconomic Stability Maintain Maintain

stable pricesstable prices Full Full

employmentemployment

Trade-offs among goalsTrade-offs among goals

Sometimes there is conflict between Sometimes there is conflict between goals. goals.

Example : raising the minimum Example : raising the minimum wagewage

Equity v. price stabilityEquity v. price stability

Which goals would be Which goals would be served?served?

Which goals restricted?Which goals restricted? A 10% tax is placed on the use of A 10% tax is placed on the use of

tanning booths. Now Snooks has to tanning booths. Now Snooks has to spray-tan.spray-tan.

New rules for unemployment benefits New rules for unemployment benefits limit the length of time individuals limit the length of time individuals can receive unemployment checks.can receive unemployment checks.

Capitalism and Economic Capitalism and Economic FreedomFreedom

A free enterprise economy has five A free enterprise economy has five main characteristics:main characteristics: Economic freedomEconomic freedom Voluntary exchangeVoluntary exchange Private property rights Private property rights Profit motive (incentives)Profit motive (incentives) CompetitionCompetition

The economic system of The economic system of the U.S.the U.S.

In the United States, our economic In the United States, our economic system issystem is

-primarily a -primarily a marketmarket system…. system….

……with some elements of with some elements of traditiontradition……

……and some elements of and some elements of commandcommand……

……so it is more accurately called a so it is more accurately called a mixedmixed market economy, or market economy, or modified modified free enterprise economyfree enterprise economy..