Economic SystemsMr. Hicks

Ms. Tschudi-Rose26 January 2011

3 Questions WHAT to produce? HOW to produce? FOR WHOM to produce?

Economic Goals Economic Efficiency

• Make the most of your resources Economic Freedom

• Freedom from government intervention Economic Security and Predictability

• Good/services will be available, payments made on time, and a safety net

Economic Equity• Fair distribution of wealth

Economic Growth and Innovation• Innovation and higher standard of living

Additional Goals• IE: environmental protection, full employment, universal

medical care, etc.

Types of Economies Traditional Economy

• Relies on habit, custom, or ritual Market Economy

• Decisions on production/consumption are based on voluntary exchanges in the market

Command Economy• Central authority is in command of the

economy Mixed Economy

• Elements of Market-based economic system with varying levels of government involvement

Traditional EconomySTRENGTHS WEAKNESSES

-Everyone knows their roleSecurity

- Discourages new ideas and new ways of doing things- inefficient

- certainty exists over WHAT and HOW to produce -Security

- Possible punishment for breaking rules or acting differently-lacks freedom

- FOR WHOM = traditions/customs

-Lower standard of living-No growth

-Life is generally stable, predictable, and continuous-Basic needs are met

EXAMPLES: Inuit, small communities around the world, Amish

Market EconomySTRENGTHS WEAKNESSSES

- Adjust to change over time Efficiency

- FOR WHOM (rewards go to the most productive resources)

- Freedom exists for everyone less equity

Gov’t involvement is limited to protecting property and providing public goods: Growth

Basic needs not met for all

-Decision making is decentralized-Freedom/ consumer sovereignty

- Variety of goods and services

- High degree of consumer satisfaction (consumer sovereignty)

EXAMPLES: United States, Hong Kong , Mexico, Canada, Japan

There are NO PURE Market economies, but these are the closest.

Command EconomySTRENGTHS WEAKNESSES

- Can change direction in a relatively short time

- Not designed to meet individual wants/needs no consumer sovereignty

Equity- all needs are met - Lack of incentives no profit motive or competition

- Requires large decision-making bureaucracy ; lacks efficiency-No flexibility to deal with minor day-to-day problems lacks efficiency

- People with new/unique ideas can’t get ahead ( no profit motive)

EXAMPLES: North Korea, Cuba, Iran, Communist China, former USSR

Mixed EconomySTRENGTHS WEAKNESSES

Varying levels of gov’ t interference*

- Difficult to transition from centrally planned to free market

-High level of economic freedom-More equity, basic needs help-Safety net for all

- Not enough involvement from the government vs. too much involvement already

- Foreign investment/free trade are encouraged

*The government will use influence to keep order, provide vital services, and to promote the general welfare.

EXAMPLES: All modern economies

Continuum of Mixed Economies

FREE MARKET CENTRALLY PLANNED

Hong Kong U.S. Mexico France China North KoreaSingapore U.K. South Africa Iran

Cuba Canada Poland Japan Russia

Works Cited http://www.united-states-flag.org/ http://www.33ff.com/flags/worldflags/Hong-Kong_flag.html https://www.cia.gov/library/publications/the-world-factbook/ge

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gs/flagtemplate_ca.html http://www.crwflags.com/fotw/flags/kp.html https://www.cia.gov/library/publications/the-world-factbook/fla

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gs/flagtemplate_pl.html https://www.cia.gov/library/publications/the-world-factbook/fla

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