Transcript Economic Systems

Economic Systems
An economic system is how a
country answers the Three
Basic Economic Questions.
Economic Systems
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For this class, we start by looking at
really BIG concepts, then get smaller,
and then get BIG again.

BIG Concepts- How are Countries
Organized.
What Must an Economic System
Provide?
Provide rules of the game & methods of
enforcement.
 Provide defense both locally & nationally.
 Provide a signaling device to inform
everyone of changes in relative scarcity.
 Facilitate specialization, trade, & exchange.
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What Makes an Economic System
Successful?
Members can easily obtain what they
want.
 Resources are efficiently used.
 Opportunity cost of production is
minimized.
 There are few disruptions & little
instability in the operation of the system.

Types of Economic Systems
Traditional economies: questions
answered by following customs &
traditions.
 Command economies: questions are
answered by a central authority.
 Market economies: questions answered
by individuals making their own
decisions.
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Traditional Economy
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Advantages- Stability, Rules of the
game are known by everyone.
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Disadvantages- Discourages new ideas,
stagnation, lower standard of living
Examples of Traditional
Economies
Characteristics of a Command
Economy
Resources are not privately owned.
 Use of resources determined by central
authority.
 Desire to help everyone is the stated
motivating force.
 No signaling device to inform of
changes in scarcity conditions.
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Examples of a Command
Economy
Characteristics of a Market
Economy
Private ownership of property.
 Individual freedom to decide how to use
resources.
 No guarantees.
 Self interest is motivating force.
 Prices signal changes in scarcity to
everyone.
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Recap and Retouch notes
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Add any additional information you find
noteworthy
Economic and Social Goals
Countries use their economic system to
reach specific goals, each countries
goals varies depending on their own
populations.
Economic Freedom
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Freedom to choose your own
occupations, employers, and use your
money
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Business owners want the freedom to
choose where and how they produce
Economic Efficiency
Resources are scarce
 Factors of Production must be used
wisely
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More Waste = fewer goods and
services.
 Benefits gained must outweigh the
Costs
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Economic Equity
Economic Fairness in employment,
 In production
 In Voluntary Exchanges (purchases)
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Economic Security
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Economic Protection
i.e. Social Security- ( The Federal
program of disability and retirement
benefits)
 Medicare
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Full Employment
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Provide as many jobs as possible to
those who are willing and able to work
Price Stability
Keeping prices from fluctuating
 Controlling Inflation (a rise in the general
level of prices)
 Controlling Interest Rates
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Fixed Income- An Income that does not
increase as prices go up
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Economic Indicators- Economic Statistics used
to measure the direction of an economy.
Examples: Stock Market, Employment Index,
Economic Growth
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Constant Improvement
Better Homes
 Better Cars
 Better Lives
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Future Goals
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Goals on which most people agree.
Examples- Cleaner Environment
 Conservation
 Eliminate Poverty
 Increased Industries
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Free Enterprise
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Textbook definition: Competition is
allowed to flourish with a minimum of
government interference.
An Economy has free enterprise if it meets the
following conditions.
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Voluntary Exchange- You as a
consumer are free (more or less) to buy
what you want. Nobody tells you what
you can or cannot buy (I did say more or
less)
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Sellers are also free to sell
what they want.
(more or less)
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Private Property Rights- You can own
and control your own possessions. That
means you can sell your stuff if you
want to.
BTW- As a minor, property rights are different for you, you can’t
sign contracts which means you cannot buy your own car,
house or have a credit card, unless you have a parent cosign.
An ATM card is not considered a credit card.
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Profit Motive- You have the ability to
make a profit on the property that you
sell. Which means you have the chance
to become an entrepreneur.
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Competition- There must be
competition between both buyers and
sellers. Buyers want the lowest price,
sellers want the highest price. As long
as there is competition between sellers,
it forces them to keep prices low.
Role of the Government in a free
enterprise system.
Protect the Economy
 Provide for the public
 Regulate competition- keep it honest
 Promote national goals
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Do we have an entirely Free
Market system ?
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Mostly yes, but we have some
restrictions (You can’t buy a nuclear bomb and
you can’t sell your kidney’s – its against the law)
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We have mixed economy- mostly free,
but also with some command and
traditional aspects mixed in as well.