1 © 2010 South-Western, a part of Cengage Learning Chapter 16 Economies in Transition...
-
date post
19-Dec-2015 -
Category
Documents
-
view
217 -
download
2
Transcript of 1 © 2010 South-Western, a part of Cengage Learning Chapter 16 Economies in Transition...
11© 2010 South-Western, a part of Cengage Learning
Chapter 16Chapter 16Economies in TransitionEconomies in Transition
Microeconomics for TodayMicroeconomics for TodayIrvin B. TuckerIrvin B. Tucker
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 22
What will I learn What will I learn in this chapter?in this chapter?
•The different forms of The different forms of economic systemseconomic systems and how they operateand how they operate
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 33
What is an What is an economic system?economic system?
•Determines what good Determines what good and services are and services are produced, how they are produced, how they are produced, and for whom produced, and for whom they are producedthey are produced
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 44
What are the basic What are the basic types of economic types of economic
systems?systems?•TraditionalTraditional•CommandCommand•MarketMarket
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 55
What is aWhat is atraditional economy?traditional economy?•A system that answers A system that answers the what, how, and for the what, how, and for whom questions the whom questions the way they always have way they always have been answeredbeen answered
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 66
What is the What is the benefit of a benefit of a
traditional economy?traditional economy?•There is little friction There is little friction among members among members because relatively little because relatively little is disputedis disputed
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 77
What are the What are the disadvantages of a disadvantages of a
traditional economy?traditional economy?•Restricts individual Restricts individual initiative initiative
•Lack of advanced goods, Lack of advanced goods, new technology, and new technology, and growthgrowth
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 88
What is aWhat is acommand economy?command economy?•A system that answers A system that answers the what, how, and for the what, how, and for whom questions by whom questions by central authoritycentral authority
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 99
What is the structure What is the structure of a command of a command
economy?economy?
•It has a pyramid It has a pyramid structurestructure
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 1010
The Command Economy PyramidThe Command Economy Pyramid
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 1111
What are the What are the strengths of a strengths of a
command economy?command economy?•Economic change can Economic change can occur very quicklyoccur very quickly
•Social welfare can be Social welfare can be enhancedenhanced
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 1212
What are the What are the weaknesses of a weaknesses of a
command economy?command economy?•Decision makers Decision makers have the power to be have the power to be absolutely wrongabsolutely wrong
•Quality and variety of Quality and variety of goods suffergoods suffer
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 1313
Planners set the price of mirrors below
equilibrium
Shortage of mirrors
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning14
200 400 600 800 1000
$20
$60
$80
$40
Pri
ce p
er s
ide
mir
ror
(rub
les)
Quantity of side mirrors (thousands per day)
E
Price set by planners
Shortage of 400,000 thousand side mirrors
S
D
Central Planners Fixing Prices
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 1515
What is aWhat is amarket economy?market economy?
•An economic system An economic system that answers the what, that answers the what, how, and for whom how, and for whom questions by the free questions by the free marketmarket
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 1616
Who was Who was Adam Smith?Adam Smith?
•The father of modern The father of modern economics who believed economics who believed that a free market that a free market economy acted like an economy acted like an “invisible hand”“invisible hand”
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 1717
What book didWhat book didAdam Smith write?Adam Smith write?•The Wealth of Nations The Wealth of Nations published in 1776published in 1776
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 1818
What is theWhat is theinvisible hand?invisible hand?
•The belief that the best The belief that the best interests of a society are interests of a society are served when individuals served when individuals are allowed to act in are allowed to act in accordance to their own accordance to their own self interestself interest
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 1919
What is the advantage What is the advantage of a market economy?of a market economy?
•It provides a wide It provides a wide variety of goods and variety of goods and services that buyers and services that buyers and sellers exchange at the sellers exchange at the lowest priceslowest prices
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2020
What are criticisms of What are criticisms of a market economy?a market economy?
•lack of competitionlack of competition•externalitiesexternalities•lack of public goodslack of public goods•income inequalityincome inequality
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2121
What is aWhat is amixed economy?mixed economy?
•An economic system An economic system that answers the basic that answers the basic questions through a questions through a mixture of traditional, mixture of traditional, command, and market command, and market systemssystems
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2222
What is capitalism?What is capitalism?•An economic system An economic system characterized by characterized by private ownership of private ownership of resources and marketsresources and markets
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2323
What isWhat isconsumer sovereignty?consumer sovereignty?•The freedom of The freedom of consumers to cast their consumers to cast their dollar votes to buy, or not dollar votes to buy, or not to buy, at prices to buy, at prices determined in competitive determined in competitive marketsmarkets
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2424
What kind of system What kind of system does the U.S. have?does the U.S. have?•No nation in the world No nation in the world precisely fits the two precisely fits the two criteria for capitalism, but criteria for capitalism, but the U.S. comes closethe U.S. comes close
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2525
What is socialism?What is socialism?•An economic system An economic system characterized by characterized by government ownership of government ownership of resources and centralized resources and centralized decision makingdecision making
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2626
Who was Karl Marx?Who was Karl Marx?•His criticism of capitalism His criticism of capitalism advanced communismadvanced communism
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2727
What two books did What two books did Karl Marx write?Karl Marx write?
•The Communist The Communist Manifesto,Manifesto, 1848 1848
•Das Kapital,Das Kapital, 1867-1885 1867-1885
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2828
What is communism?What is communism?•A stateless, classless A stateless, classless economic system in which economic system in which the factors of production the factors of production are owned by everyone, are owned by everyone, who share in accordance who share in accordance to their needsto their needs
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 2929
What are What are characteristics of characteristics of
socialism?socialism?
•public ownershippublic ownership•centralization centralization
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 3030
What are the What are the strengths of strengths of socialism?socialism?
•an equitable distribution an equitable distribution of incomeof income
•rapid growth is possiblerapid growth is possible•no unemploymentno unemployment
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 3131
What are What are weaknesses of weaknesses of
socialism?socialism?
•inefficienciesinefficiencies•stifles growthstifles growth
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 3232
A Classification of Economic SystemsA Classification of Economic Systems
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 3333
How is Cuba How is Cuba in transition?in transition?
•Despite limited free Despite limited free market reforms, Cuba market reforms, Cuba remains essentially a remains essentially a communist systemcommunist system
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 3434
How is Russia How is Russia in transition?in transition?
•Privatization plans are Privatization plans are being implemented and being implemented and steps are continuing to steps are continuing to create a dynamic create a dynamic capitalist economycapitalist economy
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 3535
How is China How is China in transition?in transition?
•China is a market of China is a market of great profit and promise great profit and promise as it continues its as it continues its transition from transition from communism to capitalismcommunism to capitalism
© 2010 South-Western, a part of Cengage Learning© 2010 South-Western, a part of Cengage Learning 3636
ENDEND