Bell ringer #3 8/25

● What are your plans for after you finish high school?

● what is the opportunity cost of your decision?-(What are you giving up?)

ECONOMIC SYSTEMS AND DECISIONS

Chapter Two

Traditional Economies

Characteristics

● The three questions (what, how, for whom) are answered using ritual, habit, and custom

● New ideas and new ways of doing things are discouraged because they do not follow tradition.

● A person’s role in the community is decided by the elders

Examples of Traditional Economies

● The Diaguita Indians of Chile●Farmers the same crops using the irrigation systems their ancestors created in the 15th century. They also herd the same animals, Llamas.

● The Inuit of Northern Canada●“We are told today that Inuit never had laws. Why? They say

because they are not written on paper. When I think of paper, I think you can tear it up, and the laws are gone. The laws of the Inuit are not on paper.”

The Potlatch economy

● Potlatch - gift giving ceremony● economic system for some indigenous North

American coastal dwellers (inuit)o a family or hereditary leader hosts guests in their family's

house and holds a feast for their guestso main point to redistribute wealth from host to guesto a display of wealth and prosperity through generosityo "give until it hurts"o prestige and honor is gained by whoever can give away

the most of their possessions and food.

Advantages of Traditional Economies

● everybody knows what they are supposed to do with their lives

● hunters hunt, farmers farm

● the way things are done has been decided

● no pressure to innovate

● who-gets-what doesn’t change●security, life is consistent.

Disadvantages of Traditional Economies

● discourages new ideas● punishment for acting differently● stagnation● low standard of living● no ability to change position/role

Command Economies

● The government of a command economy makes all major economic decisions.

● What, how, for whom

● types of leaders:

● king, dictator, Tzar

● Individual freedom is limited● no property rights, no freedom of

speech, no voting.

Examples of Command Economies

● Not a lot of these (pure) left:● North Korea● Cuba● USSR or soviet Russia

Advantages of Command Economies

● What is produced can change quickly and drastically

●tractors one week, tanks the next

● Public Health care, Pensions, jobs are

available● Government owns all businesses, so it decides costs and whether or not people pay.

Disadvantages of Command Economies

● No emphasis on peoples’ wants or needs● “for who” not answered

● quality vs. quantity●must meet quotas, cut corners

● lots of bureaucracy●takes a very long time for anything to be accomplished.

● day-to-day problems can be tough●inefficient distribution systems lead to shortages

● starvation

inside north korea

Market Economies (pure)

● People make decisions in their own interest●What do I want? Where should I

buy it? How much am I willing to pay for it?

● Relies on different “markets”●where buyers and sellers meet

to exchange goods for money●farmers market/ amazon.com, etsy

● Individuals have the freedom to buy, sell, or save as they want.

Examples of Market Economies

● USA

● Japan● Great Britain

Advantages of Market Economies

● high degree of freedom●how to spend money, "vote with your dollar"

●whether to work or further education

●private ownership - property rights laws

● adjusts gradually to change●Cost of oil has increased steadily since 1990

●Car manufacturers switched from SUV’s to sub compacts.

VS

Market Economies Advantages Cont...● small level of government interference

● national defense, EPA, Social Security, trust-busting, monopoly prevention

● decision making is decentralized●people/companies make their own choices

● lots of consumer satisfaction● you can get what you want, other people can get what they want.

● variety

●avg. wal mart has 120,000 items

Disadvantages of Market Economies

● A market economy does not provide for everyone’s basic needs●young, elderly, sick - not profitable●The government must provide for these people (using tax money)

if family/charity can’t.

● does not provide all basic goods/services●education, health care, roads, public buildings - public funded

●no profit, no product

● high degree of uncertainty●Company ships offshore?

●Competition drive you out of business?

●Fired for underperforming?

Mixed Economies

● Various combinations of all three ● Different aspects of Government, traditional, and market

economies

● minimal government intervention:● Defense, a justice system, education

Examples of Mixed Economies

● China●Government owns the factors of production

● Tradition dictates what people do

● some private ownership allowed

● Norway● Government owns just

the petroleum industry● keeps gas prices low, finance education, maintain roads, provide social welfare for citizens.

Advantages of Mixed Economies

●provides assistance for people

● young, old, sick

●traditions are still important

●voting (in some)

● affect the WHAT, HOW, and for WHOM questions.

Disadvantages of Mixed Economies

●costs can get big

● very high tax rates

●France: 63% of income taxed

● More government services, more taxes.

●sometimes quality can suffer

● no profit, no incentive, less quality.

Social Goals of Economics

1. freedom2. efficiency3. full employment4. growth5. security

a. job security, social safety nets

6. price stabilitya. control inflation and deflation

7. equitya. fair to both sidesb. Minimum wage is designed to

provide a livable wage.

The American Free Enterprise System

● Capitalism – private citizens own and use the factors of production to generate profit

● Free enterprise has – ●little government interference●competition: having more than one business to

choose from

Characteristics of The American Free Enterprise System

●Freedom●to buy, to sell, to work, to quit, to hire…

●Voluntary exchange●Private property rights●Profit motive●Competition

The American Free Enterprise System

● Three participants:● Entrepreneur

● Focused on profit● Might do well, might fail● The “catalyst”

● Consumer● Have power because they buy what they want

● Government: 3 roles● Protector

● enforce laws to protect consumers/workers● Provider

● justice, defense, subsidies, roads, public buildings● Regulator

● preserve competition: monopolies, zoning laws