Download - Economic systems
ECONOMIC SYSTEMS
Fundamental Economic Questions
Because of scarcity—every nation must answer the three fundamental economic questions: What products will be produced? How will the products be produced? For whom will the products be produced?
What to Produce?
The What question Requires an economy to decide the mix &
quantity of goods and services that it will produce.
In US, free enterprise with consumer sovereignty answers the What question.
How to Produce?
The How question Which combination of technology and
resources to use for producing goods and services.
Should labor be more or less capital-intensive
Education plays an important role Improves the ability of workers to perform their
work
For Whom to Produce?
The For Whom question Which people receive the goods and
services produced
In a free market system Price is used to decide who will receive the
goods and services that are produced. Earn more money = buy more products
Economic systems
Economic system The methods used to answer the What,
How, and For Whom questions. Traditional Market Command
Traditional Economy
Answers the questions, the way they have been answered for generations. Inuit of Canada Amish of Pennsylvania
+ Reduces friction among members -- Restricts individual initiative
Market Economy
Answers the three basic questions based only on voluntary buying and selling in markets.
Adam Smith Invisible hand: the best interests of a
society are served by markets guided by self-interest.
Read/Think/Pair/Share
Market Economy
-- very wealthy and very poor + inequality gives people an incentive to
strive for the reward of earning more income
Milton Friedman http://www.youtube.com/watch?v=RWsx1X8
PV_A
Command Economy
Answers the questions by a dictator or central authority Former Soviet Union China in the past Cuba & North Korea
Command Economy
Socialism: based on govt. ownership of resources and centralized decision making Karl Marx Communism: classless economic system in
which all resources are owned by the workers The ideal version of socialism
Mixed Economy
Mixed Economy Answers the questions through a mixture of
traditional, command, and market systems. Most countries employ a mixed economy
United States Nationalization
The act of transforming a private enterprise into a government enterprise
Amtrak General Motors