3 Questions

3 questions every society 3 questions every society must answermust answer

allocation of resourcesallocation of resources

• What goods shall be produced?

• How will the goods be produced?

• For whom will the goods be produced?

How a society answers those questions defines its economic system.

Think about a very small society

• What goods shall be produced?

• How will the goods be produced?

• For whom will the goods be produced?

___________• “Market Economy”• Free Enterprise• Characteristics:

• “Command Economy”• Communism• Characteristics

Capitalism Socialism

Private Ownership of Resources

Government plays a small role

No central economic plan

Variable Income Distribution

Market supply and demand sets prices so prices may fluctuate

Government Ownership of Resources

Government Controls the Economy

Government creates a central plan

Government may redistribute income (income distribution)

May use price controls to regulate market

X

Market (Capitalist) v. Command (Socialist)

Pros Cons

Market

Command

Market Economy= Capitalism

• 18th century economic & political ideology • Adam Smith’s The Wealth of Nations• Claimed people who trade with each other don’t go to war with

each other.• Government should not interfere with the economy or it may

disrupt trade and people’s ability to prosper.• Smith claimed that instead of a government running an

economy an “invisible hand”“invisible hand” known as a market would. • Concept is referred to as laissez-faire or “hands off” economics.

Karl MarxFounder of the communist ideology. He claimed that as long as there existed a

business owning class, oppression would continue.

___________ X

MIXED ECONOMYMIXED ECONOMY

Ownership of resources; private property?Ownership of resources; private property?

Governments Role in the Economy?Governments Role in the Economy?

Intervention in the Market; the role of price?Intervention in the Market; the role of price?

Free Enterprise Socialism

Why is the United States considered a mixed economy?

Why is the United States considered a mixed economy?

• With your partner, create a list in your notes of all the ways you can think that prove that the US is a mixed economy.

Ownership of resources; private property?Ownership of resources; private property?

Governments Role in the Economy?Governments Role in the Economy?

Intervention in the Market; the role of price?Intervention in the Market; the role of price?

Homework:

• From the 2012 Index of Economic Freedom2012 Index of Economic Freedom• Create a spectrum. Free Enterprise________________________Socialism

– Research any 6 countries. Place them in their appropriate place on the spectrum

• Select one of the countries.– Write a 2-3 paragraph description of economic freedom

in that country including evidence from the four broad categories.

• Select 3 different countries. Graph a comparison of their economic freedom through time. (It’s OK to print)