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Transcript of Economic Systems Three Basic Questions Due to scarcity, individuals, governments, and businesses,...
Economic SystemsChapter 2
Essential QuestionWhat are the advantages and
disadvantages of the various world economies?
Economic SystemsThree Basic QuestionsDue to scarcity, individuals, governments, and
businesses, must make decisions about what to produce. The type of economic system that a
nation uses will dictate who makes these decisions.
Question 1: What Should be Produced?
Question 2: How Should It be Produced?
Question 3: For Whom Should It be Produced?
Chapter 2 Section 1
Societies use their scarce resources to
satisfy unlimited wants
Economic Systems
Traditional Economy
Command EconomyMarket
Economy
Traditional Economies
Advantages Disadvantages
Traditional Economies
Command Economies
Socialism Communism
Who owns the resources?
How are resources allocated?
What role does government play?
Karl Marx
Major Accomplishment: Detailed analysis of capitalism and foundation for socialist economic theory in two famous works The Communist Manifesto (1848) and Das Kapital (1867, 1894)
Famous Quotation: “Workers of the world, unite! You have nothing to lose but your chains.”
Influenced: Russian Revolution (1917), Chinese Revolution (1979)
What is a Market?
It is any place or situation in which people buy and sell resources, goods, and services
It is based on the voluntary exchange of goods and services.
Price is the determining factor for what will be produced, how it will be produced, and for whom it will be produced.
Adam SmithFounder of Classical Economics
“Every individual… intends only his own gain, and he is in this, as in
many other cases, led by an invisible had to promote an end which was no
part of his intention.”From Wealth of Nations
• Individuals pursue their own self interest
• Free markets
• Limited regulation by the government
Private Proper
ty
•must be actively enforced by law
•guarantees the owner the right to exchange the property for some other gainLimited
Government
Involvement
•Laissez-faire•Capitalism: producers act on their own to provide goods and services that consumers demand
Voluntary
Exchange
•Both sides believe they are getting a deal
Competition &
Consumer Sovereign
ty
•All sellers in a market will try to get buyers to purchase their products.
•Consumers are free to purchase what they want and therefore have ultimate control over what is produced
Specializati
on
•Buyers and sellers are able to concentrate their efforts in areas where they have an advantage
Fundamentals of a Market Economy
http://www.classzone.com/cz/books/econ_cnc11/resources/htmls/animated_economics/ec02_anim_circflow.html
Circular Flow Model
Four Basic Types of Economic Systems
Traditional
Command
Market
Mixed
People & Perspectives
Economists
John Stuart MillHis ideas formed the basis of a mixed
economy system
Goal of Utilitarianism:”“ The distribution of wealth…depends on the laws and customs of society…. Society can subject the distribution of wealth to whatever rules it thinks best.”
In Principles of Political Economy (1848) he emphasized• Production and
distribution as separate processes
• Distribution regulated by the government in order to achieve the utilitarian goal
Utilitarianism: the idea that society should adopt policies promoting “the greatest happiness of the greatest number
Discuss
How is the United States’ economic system a mixed economy?
How does it embody the goal of utilitarianism?
Characteristics of the American Economy
In a free market economy, who makes the decisions about what should be produced, what should be produced, and for whom should it be
produced?
Characteristics of the American Economy
American Economy
Private Property
Competition
Limited role of government
Freedom of EnterpriseFreedom of
Choice
Profit Incentive