Economic Economic SystemsSystems

An economic system is An economic system is how a country answers the how a country answers the

Three Basic Economic Three Basic Economic Questions. Questions.

Economic Systems Economic Systems

For this class, we start by looking For this class, we start by looking at really BIG concepts, then get at really BIG concepts, then get smaller, and then get BIG again.smaller, and then get BIG again.

BIG Concepts- How are Countries BIG Concepts- How are Countries Organized. Organized.

What Must an Economic What Must an Economic System Provide?System Provide?

Provide rules of the game & methods Provide rules of the game & methods of enforcement. of enforcement.

Provide defense both locally & Provide defense both locally & nationally. nationally.

Provide a signaling device to inform Provide a signaling device to inform everyone of changes in relative everyone of changes in relative scarcity. scarcity.

Facilitate specialization, trade, & exchange. Facilitate specialization, trade, & exchange.

What Makes an Economic What Makes an Economic System Successful?System Successful?

Members can easily obtain what Members can easily obtain what they want. they want.

Resources are efficiently used. Resources are efficiently used. Opportunity cost of production is Opportunity cost of production is

minimized. minimized. There are few disruptions & little There are few disruptions & little

instability in the operation of the instability in the operation of the system.system.

Types of Economic Types of Economic SystemsSystems

Traditional economies: Traditional economies: questions answered by questions answered by following customs & traditions. following customs & traditions.

Command economies: Command economies: questions are answered by a questions are answered by a central authority. central authority.

Market economies: questions Market economies: questions answered by individuals making answered by individuals making their own decisions. their own decisions.

Traditional EconomyTraditional Economy

Advantages- Stability, Rules of the Advantages- Stability, Rules of the game are known by everyone. game are known by everyone.

Disadvantages- Discourages new Disadvantages- Discourages new ideas, stagnation, lower standard ideas, stagnation, lower standard of living of living

Examples of Traditional Examples of Traditional EconomiesEconomies

Characteristics of a Characteristics of a Command EconomyCommand Economy

Resources are not privately Resources are not privately owned. owned.

Use of resources determined by Use of resources determined by central authority. central authority.

Desire to help everyone is the Desire to help everyone is the stated motivating force. stated motivating force.

No signaling device to inform of No signaling device to inform of changes in scarcity conditions.changes in scarcity conditions.

Examples of a Command Examples of a Command EconomyEconomy

Characteristics of a Characteristics of a Market EconomyMarket Economy

Private ownership of property. Private ownership of property. Individual freedom to decide Individual freedom to decide

how to use resources. how to use resources. No guarantees. No guarantees. Self interest is motivating force. Self interest is motivating force. Prices signal changes in scarcity Prices signal changes in scarcity

to everyone.to everyone.

Recap and Retouch notesRecap and Retouch notes

Add any additional information you Add any additional information you find noteworthyfind noteworthy

Economic and Social GoalsEconomic and Social Goals

Countries use their economic Countries use their economic system to reach specific goals, system to reach specific goals,

each countries goals varies each countries goals varies depending on their own depending on their own

populations. populations.

Economic FreedomEconomic Freedom

Freedom to choose your own Freedom to choose your own occupations, employers, and use occupations, employers, and use your moneyyour money

Business owners want the freedom Business owners want the freedom to choose where and how they to choose where and how they produceproduce

Economic Efficiency Economic Efficiency

Resources are scarceResources are scarce Factors of Production must be used Factors of Production must be used

wiselywisely

More Waste = fewer goods and More Waste = fewer goods and services.services.

Benefits gained must outweigh Benefits gained must outweigh the Coststhe Costs

Economic EquityEconomic Equity

Economic Fairness in employment,Economic Fairness in employment, In production In production In Voluntary Exchanges In Voluntary Exchanges

(purchases) (purchases)

Economic SecurityEconomic Security

Economic Protection Economic Protection i.e. Social Security- ( The Federal i.e. Social Security- ( The Federal

program of disability and retirement program of disability and retirement benefits)benefits)

MedicareMedicare

Full EmploymentFull Employment

Provide as many jobs as possible Provide as many jobs as possible to those who are willing and able to those who are willing and able to work to work

Price StabilityPrice Stability Keeping prices from fluctuatingKeeping prices from fluctuating Controlling Inflation (a rise in the general level Controlling Inflation (a rise in the general level

of prices) of prices) Controlling Interest RatesControlling Interest Rates

Fixed Income- An Income that does not Fixed Income- An Income that does not increase as prices go upincrease as prices go up

Economic Indicators- Economic Statistics used Economic Indicators- Economic Statistics used to measure the direction of an economy. to measure the direction of an economy. Examples: Stock Market, Employment Index, Examples: Stock Market, Employment Index,

Economic GrowthEconomic Growth

Constant ImprovementConstant Improvement Better HomesBetter Homes Better CarsBetter Cars Better LivesBetter Lives

Future GoalsFuture Goals

Goals on which most people agree. Goals on which most people agree. Examples- Cleaner EnvironmentExamples- Cleaner Environment ConservationConservation Eliminate PovertyEliminate Poverty Increased IndustriesIncreased Industries

Free EnterpriseFree Enterprise

Textbook definition: Competition is Textbook definition: Competition is allowed to flourish with a minimum allowed to flourish with a minimum of government interference. of government interference.

An Economy has free enterprise if it An Economy has free enterprise if it

meets the following conditions.meets the following conditions.

Voluntary Exchange-Voluntary Exchange- You as a You as a consumer are free consumer are free (more or less)(more or less) to to buy what you want. Nobody tells buy what you want. Nobody tells you what you can or cannot buy you what you can or cannot buy (I (I did say more or less) did say more or less)

Sellers are also free to sell Sellers are also free to sell (more or (more or

less)less) what they want. what they want.

Private Property Rights- You can Private Property Rights- You can own and control your own own and control your own possessions. That means you can possessions. That means you can sell your stuff if you want to. sell your stuff if you want to.

BTW- As a minor, property rights are different for you, BTW- As a minor, property rights are different for you, you can’t sign contracts which means you cannot buy you can’t sign contracts which means you cannot buy your own car, house or have a credit card, unless you your own car, house or have a credit card, unless you have a parent cosign. An ATM card is not considered a have a parent cosign. An ATM card is not considered a credit card. credit card.

Profit Motive- You have the ability Profit Motive- You have the ability to make a profit on the property to make a profit on the property that you sell. Which means you that you sell. Which means you have the chance to become an have the chance to become an entrepreneur. entrepreneur.

Competition- There must be Competition- There must be competition between both buyers competition between both buyers and sellers. Buyers want the and sellers. Buyers want the lowest price, sellers want the lowest price, sellers want the highest price. As long as there is highest price. As long as there is competition between sellers, it competition between sellers, it forces them to keep prices low. forces them to keep prices low.

Role of the Government in a Role of the Government in a free enterprise system. free enterprise system.

Protect the EconomyProtect the Economy Provide for the publicProvide for the public Regulate competition- keep it Regulate competition- keep it

honesthonest Promote national goalsPromote national goals

Do we have an entirely Free Do we have an entirely Free Market system ?Market system ?

Mostly yes, but we have some Mostly yes, but we have some restrictions restrictions (You can’t buy a nuclear bomb (You can’t buy a nuclear bomb and you can’t sell your kidney’s – its against the and you can’t sell your kidney’s – its against the law) law)

We have mixed economy- mostly We have mixed economy- mostly free, but also with some command free, but also with some command and traditional aspects mixed in as and traditional aspects mixed in as well. well.