Transcript Economic Systems ppt

Welcome to Economics!
Do Now: …think & write…..
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What do you think we will be talking
about in this class??
….and…. what do you hope to learn that
will be useful to you in the “real world”?
What is economics??
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Think…
Economics is the study of how a society
uses its limited resources to satisfy its
wants and needs
......wants and needs??
-- wants = luxuries
--needs = necessities
….wait……”limited resources”….what’s
that word……????
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Scarcity – limited amount of resources to
satisfy unlimited wants
….for this reason, individuals, businesses, and
societies must make choices……..
……trade offs…
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Opportunity cost – the most desirable
alternative given up as a result of a
decision
Guns or Butter??
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Countries must make decisions about
how to use resources……
Example – a country that produces more
military goods has fewer resources for
consumer goods
What are the 3 key economic questions
that all societies must answer??
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What goods and services should be
produced?
How should goods and services be
produced?
Who consumes goods and services?
Economic Systems
What is an economic system??
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the method used by a society to produce and
distribute goods and services
reflects a society’s goals and values
Ok…..so… how does a society choose an
economic system??
5 Basic economic goals guiding the choice...
 1) Economic efficiency
- making the most out of resources
2) Economic freedom
- who will control production and
distribution of goods & services…
… people or government?
- people having choices
…. jobs, purchases
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….more goals….
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3) Economic security
- predictability
- goods & services will be available, payments
will be made
- safety net – gov’t programs to protect
people during tough economic times
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4) Economic equity
- Distribution of goods & services .....
.....depends upon?
....society’s values
- Jobs & pay???? Equity???
5) Economic growth & innovation
- to increase standard of living
What are the 4 main kinds of
economic systems?
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1. Traditional
- habit, custom, ritual
- subsistence farming
- occupation of family
- Low social/economic mobility (poor stay poor)
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2. Market
- individuals make decisions
- free market, capitalism
- free enterprise
- private ownership
- competition
- profit motive
- supply & demand
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Individuals make decisions
- production – what, how, how much, cost
- what to buy
- jobs/businesses
Free Enterprise
- individuals are free to operate businesses
as they see fit to maximize profit
- some govt regulation
 Role of govt in free market economy:
- protection of workers and consumers
- disclosure laws – make buyers
knowledgeable & safe …..
….”disclaimer” = fine print…..
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Private Ownership
- private property – businesses privately
owned
- individuals control factors of production
-> resources used to make goods & services
- natural – raw materials
- human – labor
- capital – investment $, buildings,
machinery
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Competition
 the struggle among various producers for
the consumer’s business
 regulating force in the marketplace
- keeps prices low & quality high
- monopoly – when one company controls a
particular market  examples??
--> competition discourages monopolies
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Profit Motive
 the reason people own businesses in a
market economy
......duh!!!........
 incentive
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Supply & Demand
- supply – amount available
- demand – amount consumers are willing and
able to buy
-> when prices are lower, people will buy
more
-people make desires known to businesses by…
…buying stuff!!
Supply & Demand ….still….
 the driving force in a market economy!!
 determines prices and quantity of most
goods produced
low supply, high demand
high prices!
high supply, low demand
low prices!
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Advantages of Free Market Economy
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variety of goods and services
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profit
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choices
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3.Centrally planned
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Command
Government makes all decisions
public ownership
fewer choices for individuals
- Communism
“A theoretical economic system characterized
by the collective ownership of property and by
the organization of labor for the common
advantage of all members.”
4.Mixed economy
- combination
- some gov’t control, some capitalism
- most developed nations today
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“An economy that combines elements of
capitalism and socialism, mixing some individual
ownership and regulation. Some capitalist
countries, France, for example, employ what is
often called state capitalism. In this form of a
mixed economy, the state becomes a major
shareholder in private enterprises. An alternative,
employed in Great Britain (more in the past than
now), is for the state to own some industries
while leaving others in private hands.”
Socialism:
“An economic system in which the production and
distribution of goods are controlled substantially by
the government rather than by private enterprise,
and in which cooperation rather than competition
guides economic activity. There are many varieties of
socialism. Some socialists tolerate capitalism, as long
as the government maintains the dominant influence
over the economy; others insist on an abolition of
private enterprise. All communists are socialists, but
not all socialists are communists.”
FEATURES OF SWEDISH
SOCIALISM
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Combination of private ownership of industry and
government funded welfare
When a child is born, parents entitled to combined 450
days of parental leave with ¾ pay
Several months of government paid sick and vacation
leave each year
If unemployed, workers receive 80% of their pay from
government and sponsored retraining
While government claims 5% unemployment,
government bureaucracy and government sponsored
employment raises true number to 10%
Employers responsible for first four days of sickness, no
documentation necessary
More Features Swedish Socialism
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Medical costs are mostly paid by government
Cost of system – Swedish workers pay 55% of their income
in taxes plus a value added tax (sales tax) of 25%,
compared to max. of 28% for married couples in US
earning < $ 200,000 and 8.25% sales tax in Orange
County
Results in loss of consumer spending and loss in
productivity
Swedish suicide rates are moderately high for men and
very high for women
In Oslo, Norway, neighboring country and similar
economically, shortage of police officers, medical and
school supplies. Significant drug addiction, and delivery of a
pizza from Oslo’s most popular pizza joint runs from
$ 34.00 to $ 48.00, including delivery charges and sales
tax. Gas is $ 6.00 per gallon (2005)
COMPARATIVE ECONOMIC
SYSTEMS
COMMUNISM
SOCIALISM
SOVIET RUSSIA
NORTH KOREA
SWEDEN
TOTAL
GOVERNMENT
CONTROL
MODERATE
GOVERNMENT
CONTROL
COMMAND
CAPITALISM
U.S.A.
MINIMAL
GOVERNMENT
CONTROL
FREE
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Traditional
 small village in Africa
Market – capitalism
 US
Mixed - varying degrees of capitalism &
socialism
 England, France, India & Sweeden
*China - mixed, but more command
Centrally Planned – command, communism
 North Korea, former USSR
What to review for the test ?????
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function of economic systems
types – def & examples
supply & demand – importance in market economy,
effect on prices
creating demand
opportunity cost
“guns or butter”
competition
profit
role of govt in market economy
advantages of free market