mr. hicks ms. tschudi-rose 26 january 2011. what to produce? how to produce? for whom to produce?
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Economic SystemsMr. Hicks
Ms. Tschudi-Rose26 January 2011
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3 Questions WHAT to produce? HOW to produce? FOR WHOM to produce?
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Economic Goals Economic Efficiency
• Make the most of your resources Economic Freedom
• Freedom from government intervention Economic Security and Predictability
• Good/services will be available, payments made on time, and a safety net
Economic Equity• Fair distribution of wealth
Economic Growth and Innovation• Innovation and higher standard of living
Additional Goals• IE: environmental protection, full employment, universal
medical care, etc.
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Types of Economies Traditional Economy
• Relies on habit, custom, or ritual Market Economy
• Decisions on production/consumption are based on voluntary exchanges in the market
Command Economy• Central authority is in command of the
economy Mixed Economy
• Elements of Market-based economic system with varying levels of government involvement
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Traditional EconomySTRENGTHS WEAKNESSES
-Everyone knows their roleSecurity
- Discourages new ideas and new ways of doing things- inefficient
- certainty exists over WHAT and HOW to produce -Security
- Possible punishment for breaking rules or acting differently-lacks freedom
- FOR WHOM = traditions/customs
-Lower standard of living-No growth
-Life is generally stable, predictable, and continuous-Basic needs are met
EXAMPLES: Inuit, small communities around the world, Amish
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Market EconomySTRENGTHS WEAKNESSSES
- Adjust to change over time Efficiency
- FOR WHOM (rewards go to the most productive resources)
- Freedom exists for everyone less equity
Gov’t involvement is limited to protecting property and providing public goods: Growth
Basic needs not met for all
-Decision making is decentralized-Freedom/ consumer sovereignty
- Variety of goods and services
- High degree of consumer satisfaction (consumer sovereignty)
EXAMPLES: United States, Hong Kong , Mexico, Canada, Japan
There are NO PURE Market economies, but these are the closest.
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Command EconomySTRENGTHS WEAKNESSES
- Can change direction in a relatively short time
- Not designed to meet individual wants/needs no consumer sovereignty
Equity- all needs are met - Lack of incentives no profit motive or competition
- Requires large decision-making bureaucracy ; lacks efficiency-No flexibility to deal with minor day-to-day problems lacks efficiency
- People with new/unique ideas can’t get ahead ( no profit motive)
EXAMPLES: North Korea, Cuba, Iran, Communist China, former USSR
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Mixed EconomySTRENGTHS WEAKNESSES
Varying levels of gov’ t interference*
- Difficult to transition from centrally planned to free market
-High level of economic freedom-More equity, basic needs help-Safety net for all
- Not enough involvement from the government vs. too much involvement already
- Foreign investment/free trade are encouraged
*The government will use influence to keep order, provide vital services, and to promote the general welfare.
EXAMPLES: All modern economies
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Continuum of Mixed Economies
FREE MARKET CENTRALLY PLANNED
Hong Kong U.S. Mexico France China North KoreaSingapore U.K. South Africa Iran
Cuba Canada Poland Japan Russia
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