What kind do you live in?. Systems that answer the three basic economic questions of what, how, and...
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Transcript of What kind do you live in?. Systems that answer the three basic economic questions of what, how, and...
ECONOMIC SYSTEMS…What kind do you live in?
Economic systems
Systems that answer the three basic economic questions of what, how, and for whom
Incentives: An incentive is what motivates people. Ex. A dog gets a treat to pee outside. The
treat is the incentive. It motivates the dog to pee outside. The dog has a reason to pee outside.
An incentive encourages you!
Basic systemsThey do not exists anymore
Traditional System A native American tribe is an example Custom and tradition answer the 3 Q a current day example: a recipe passed down
from your grandmother to your mom and now to you
Basic Economic systemsDo not exists anymore
Command System (Pure Centrally Planned) Feudal system is a past example…..Kings,
lords, serfs The “government” answers the three
questions. The people do not have a say The problem is that the people have no
incentives.
Basic Economic systemsNo longer present today
Pure Market System A market systems has NO government
involvement in the market The people answer the three basic questions The incentive to work hard is to make more
money….maybe even be rich! Adam Smith wrote about how wonderful the
market system is in the “Wealth of Nations”. He says the incentives it provides motives people and the invisible hand guides the market.
Mixed Systems: Modern day
Mixed systems provide elements of different Economic systems mixed together.
These types of systems are the systems we see in the world today.
All economies in the world today are mixed.
They are: Communism, Socialism, and Capitalism
Communism
Mostly Command with a touch of market. The three questions are answered by the
Government. The government controls where you can live,
what you will do for work, and how much money you will make.
You are taxed at a very high rate Government provides public healthcare, ed,
and retirement No incentives are present in this system. Ex. Cuba
Socialism
Created at the end of WWII. It is a 50/50 mix of Communism and Capitalism
The three basic Econ Q are answered by the people and the government together.
It does provide incentives, but not as many as Capitalism
It does provide Public services like healthcare, ed, and retirement. Private options available for an extra cost.
Taxed at a rate of about 50%. Ex. France
Capitalism
US is an example It is mostly market b/c the government has a
limited role in the economy There are many incentives to work hard The people answer the three basic Econ Q The system is considered mixed b/c the
government is present, not making it 100% market.
The people must provide their own health care, education after HS, and retirement.
Taxed at a rate of about 30%
Goals of Capitalism
In the US, Capitalism is also called “Free Enterprise”
Goals: Economic Freedom Economic Equity Economic stability (with prices and jobs) Economic Growth (standard of living) Economic Security Economic efficiency
Transitional Economy
Moving from one type of Economic system to another. It is a long process and cannot happen over night.