EQ: How do different types of economic systems seek to answer the three basic economic questions?

AgendaLecture: 3 Basic Economic QuestionsActivity and Discussion: Distributing the

cookieLecture: 3 major economic systems Writing activity

Economic system—organized way to produce and distribute goods and services

Each must answer 3 basic economic questionsWhat will be produced?

Agricultural goods, hair cuts, massages, health care, toys, any government subsidies?

How will it be produced?Advanced machinery, hard labor, any government

regulations?For whom will it be produced?

More money = more goods, distributed equally, social safety net

Economic systems

Distributing the Cookie

MarketCommandTraditional

3 Major Types of Economic Systems

Forces of SUPPLY and DEMAND answer the 3 basic Qs

Self-interest motivatesCompetition regulates

Market Economies

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages” 

“Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention” 

Adam Smith

The good—flexible, individual freedom, variety of g/s, growth

The bad—inequitable, market failures (monopolies, externalities, lack of public goods)

Market Economies

Aka planned economies or communist Government answers the 3 basic questions

Command Economies

“From each according to his abilities, to each according to his needs.”

“Workers of the world unite; you have nothing to lose but your chains.”

“The theory of Communism may be summed up in one sentence: Abolish all private property.”  

Karl Marx

The good—can change drastically and fast, may provide for basic needs

The bad—lacks incentives for hard work, costly to plan, inflexible for small things

Command Economies

The past/tradition answers the 3 basic questions

The good—life is predictable, closer to family and community

The bad—no growth, low standard of living, discourage new ideas

http://www.youtube.com/watch?v=gRdfX7ut8gw

Traditional Economies

ALL economies are MIXED. Some have more market characteristicsSome more commandhttp://www.heritage.org/index/ranking

Mixed Economies

Market Command

What characteristics make us market, command, and traditional?

Command—taxing, subsidies to certain businesses (farmers, green energy), government regulations: Health dept. inspections, gas mileage regulations, no alcohol until 21; safety net—food stamps, Medicaid, public housing

Tradition—2011 $2.88 trillion increase in retail sales for Christmas

U.S. Economy Discussion

Do you think that the U.S. should adopt more market or command style policies? Reference the 3 basic economic questions. On which question(s) should the government interfere more or less?

Due tomorrow.

Quick Write