Economic SystemsEconomic Systems

Chapter 2Chapter 2

What will you learn What will you learn today?today?

1.1. Advantages and disadvantages of Advantages and disadvantages of traditional, market, and command traditional, market, and command economieseconomies

2.2. Characteristics of market, traditional, Characteristics of market, traditional, and command economiesand command economies

3.3. Economic system of another countryEconomic system of another country

3 Basic Questions3 Basic Questions

1.1. What to ProduceWhat to Produce

2.2. How to ProduceHow to Produce

3. For Whom to Produce3. For Whom to Produce

Traditional Traditional

Answer questions based on ritual or Answer questions based on ritual or customcustom

““That’s the way we have always done it ville”That’s the way we have always done it ville”

Based on traditions of elders/ancestorsBased on traditions of elders/ancestors

Traditional ExamplesTraditional Examples

What to Produce?What to Produce? Megalith/StonehengeMegalith/Stonehenge

Traditional ExamplesTraditional Examples

How to Produce?How to Produce? Ritual/pre-modern Ritual/pre-modern

JapanJapan

Traditional ExampleTraditional Example

For Whom to Produce?For Whom to Produce? Potlatch Guests/Northern Pacific Native AmericansPotlatch Guests/Northern Pacific Native Americans

TraditionalTraditional

AdvantagesAdvantages Everyone knows their Everyone knows their

rolerole Stable and Stable and

predictablepredictable

DisadvantagesDisadvantages Discourages new Discourages new

ideasideas StagnationStagnation Lower standard of Lower standard of

livingliving

Command EconomyCommand Economy

Central authority makes What, How, and Central authority makes What, How, and For Whom decisionsFor Whom decisions

Government determines how resources Government determines how resources are usedare used

““We Do What We’re Told Ville”We Do What We’re Told Ville”

CommandCommand

What to produceWhat to produce During the rule of Mao Zedong – Mao suitDuring the rule of Mao Zedong – Mao suit

CommandCommand

How To ProduceHow To Produce Manual LaborManual Labor 1930s1930s Canal between White and Baltic SeasCanal between White and Baltic Seas Too narrow and shallow for shipsToo narrow and shallow for ships

CommandCommand

For Whom to For Whom to ProduceProduce Ancient Egypt = KingAncient Egypt = King- TombsTombs- Wooden hammer and Wooden hammer and

metal chisel to dig metal chisel to dig tomb into mountaintomb into mountain

CommandCommand

AdvantagesAdvantages Little uncertainty about jobLittle uncertainty about job Provide education, and Provide education, and

healthcare at no cost, but healthcare at no cost, but minimal amountsminimal amounts

DisadvantagesDisadvantages Does not meet wants of Does not meet wants of

consumerconsumer No incentive to work, just No incentive to work, just

fill quotafill quota Requires large decision Requires large decision

making bureaucracymaking bureaucracy Not flexible with day to Not flexible with day to

day crisisday crisis No rewards for initiativeNo rewards for initiative

MarketMarket

People and firms in their own best People and firms in their own best interests decide on the What, How, and interests decide on the What, How, and For WhomFor Whom

Consumers not just producers decide Consumers not just producers decide what to producewhat to produce

MarketMarket

What to produceWhat to produce Beanie Babies!Beanie Babies!

MarketMarket

How to ProduceHow to Produce 1900s1900s Henry FordHenry Ford Assembly LineAssembly Line

MarketMarket

For Whom to For Whom to ProduceProduce Broad MarketBroad Market

MarketMarket

AdvantagesAdvantages Individual freedomIndividual freedom Small degree of Small degree of

government interferencegovernment interference Decentralized decision Decentralized decision

makingmaking Plethora of goods and Plethora of goods and

servicesservices High degree of consumer High degree of consumer

satisfactionsatisfaction

DisadvantagesDisadvantages Rewards only productive Rewards only productive

resources: Does not resources: Does not provide for people too provide for people too young, too old, or too sickyoung, too old, or too sick

Does not produce enough Does not produce enough public goodspublic goods

High degree of uncertaintyHigh degree of uncertainty Market failuresMarket failures

CompetitiveCompetitive Adequate infoAdequate info Freely moving resourcesFreely moving resources