Economic Systems

How do economic systems answer your basic economic questions?

Discussion Topic

What to produceHow to ProduceFor whom to produce

Basic Economic Questions

Answers the basic economic questions by rituals, habits, religious beliefs, and customs

Traditional Economy

Individual roles are determined the elders

Examples: herding cattle, hunting and gathering, subsistence farming

Traditional Economy

INUIT OF CANADA

Bushmen of Kalahara

Bush women of Kalahara

Central Australia

There is little or no uncertainty- everyone knows the role they play

Life is generally stable, predictable, and continuous

Traditional Economy Advantages

Tends to discourage new ideas and new ways of doing things

Lack of progress lowers the standard of living

Traditional Economies Disadvantages

1. What to produce?Whatever customs and traditions dictate

How do traditional economies answer the basic economic questions?

2. How to produce?Whatever customs and traditions dictate

How do traditional economies answer the basic economic questions?

3. For whom to produce?Whatever customs and traditions dictate

How do traditional economies answer the basic economic questions?

Basic Economic Questions are answered by the government

Command Economy

Only two Command Economies left in World-Cuba and North Korea

Command Economy

It is associated with communism and socialism

Command Economy

Cuba

North Korea

The government has total control over production and its factors, thus the economy can change rapidly. Whatever is needed most will be produced

Advantages of Command Economy

Example is collective farms which are owned and operated by the central government. Money made goes to the government

Command Economy

Free education, free healthcare, and other public services

Advantages of Command Economy

Economy is designed to meet needs not wants

There is no incentive to work hard—people don’t often lose their jobs so they do the bare minimum

Disadvantages of Command Economy

Economy supports a large bureaucracy (government) which means decision making is slow, costs of production are high, and there is no flexibility

Disadvantages of Command Economy

There is no reward for initiative

Disadvantages of Command Economy

1. What to produce?Whatever the government says to produce

How do command economies answer the basic economic questions?

2. How to produce?However the government tells you to produce

How do command economies answer the basic economic questions?

3. For whom to produce?For whomever the government tells you to produce

How do command economies answer the basic economic questions?

Basic economic questions are answered by consumers

Market Economies

Laissez-faire is a pure market economy meaning “allow to do”. The government has little or no power in what is produced or sold.

Market Economy

Free-enterprise system- business owners set their own prices and sell their own goods.

Market Economy

Adjusts to change based on consumer wants

High level of individual freedom

Low level of government interference

Advantages of Market Economy

Because individuals make the decisions, everyone has a voice in the way economy runs

Advantages of Market Economy

Wide variety of available goods and services

Many choices=high degree of consumer satisfaction

Advantages of Market Economy

Poverty: only those with money can participate

Disadvantages of market Economies

Market does not provide for people’s basic needs. Government must attempt to do this (Think about Katrina)

Disadvantages of market Economies

High degree of uncertainty: people lose their jobs and businesses fail

Disadvantages of market Economies

Greed based system puts profits before people (think about loss of jobs here. What caused it?)

Disadvantages of market Economies

Are they truly Free market economies?

Does the government regulate businesses?

Does the government control any businesses?

What kind of economy do the U.S., Canada and the U.K. really have?

1. What to produce?Directed by the consumers.

How do market economies answer the basic economic questions?

2. How to produce?Companies decide cheapest and most efficient means of production.

How do market economies answer the basic economic questions?

3 For whom to produce?The consumer that has the ability and money to afford the companies product.

How do market economies answer the basic economic questions?

An economy is considered a mixed economy when there are characteristics of more than one economy evident.

For example, the United States is a mixed economy because there are privately owned businesses that operate on their own like a market system but they are regulated by the government also.

Mixed Economy