Transcript free market economy

Economic Systems
Traditional, Command, Market
and Mixed Economies
Traditional Economies
• Rely on customs of what worked in the past.
Description
Advantages
• Close-knit community
• Precisely defined roles in society
• Standard production methods: thy know exactly how to
produce what they need with available resources
• Tradition dictates who gets the first pick of the resources.
• Traditions play a stabilizing role in our lives
What traditions are there in the
United States?
List some traditional societies in
the United States. See if you can
come up with more than three!
Disadvantages
• Traditional economy do not allow for much economic growth
and development.
• Changes are slow and there is little social mobility.
• Technological innovation and promotion of intellectual and
scientific development are not encouraged.
• There are few incentives for entrepreneurs, thus limiting
choices for consumers and lowering standards of living.
Command Economy
Description
• A command economy plans out in detail economic decisions,
which are made by a central government authority.
• The plan is implemented through laws, regulations and
directives.
• Businesses follow production and hiring targets instead of
individually and freely responding to the laws of supply and
demand.
• Central planners seek to replace the forces that operate in a
free market economy, and the customs that guide a
traditional economy, to attain specific societal goals.
Advantages
• Equality is the focus. The government tries to eliminate all
private property and distribute its goods equally. No one is in
poverty and no one is wealthier than another.
• Social services are emphasized in this type of economy. The
government will provides equal health care, education
opportunities, and makes sure all people are fed.
• It is capable of rapid change for major problems. The
government owns the companies, so if production needs need
to be shifted into a different area, the government is able to
do it very quickly.
• A final major advantage of command economies is that they
are very stable. Command economies will never have sudden
depressions.
Disadvantages
• In command economies there is very little freedom. The
individual usually does not have the opportunities to decide
what they want to do for a career, and they have no control
over the goods they receive.
• There is little reason to innovate, work hard, or check quality
of the work. Since no one makes more money than anyone
else, the people feel like there is no incentive to work hard.
• Little focus on consumer wants.
• The centralized government has a hard time coping with
minor day-to-day changes.
Can parts of the US Economy have
characteristics of a Command
Economy at times?
Market Economy
• Characterized by freedom
• People choose what they wish to buy and how much
• Market economies are based on the idea of capitalism, in
which people own the means of production and have private
ownership of property.
• Capitalism is the means of production, and market economy is
where the exchange of goods and services happens
Advantages
•
•
•
•
•
•
Many individual freedoms
Gradual adjustment to change
Lack of government interference
Decentralized decision-making
Huge variety of goods and services
Consumer satisfaction
Disadvantages
• Rewards only productive resources: does not value those who
cannot work: the old, the young, disabled, sick, unemployed for
whatever reason
• Public goods are often neglected
• Uncertainty for workers and businesses from competition and
change
• Everything has a dollar value
Examples of pure free enterprise
systems
• There are no absolute examples of a pure free enterprise
system in the world today. This is subject to change. Some
people say that Somalia is a completely unregulated free
marked currently
• The US has a modified free enterprise system, or mixed
economy
• Most countries are moving to a mixed system
Mixed economic systems
• Most economies in the world are moving toward a mixed
economic system
These are a blend of the three systems: Traditional, Command,
and Free Enterprise in order to try to fulfill the demands of
society
The blends are a mix of three systems that exist along the
spectrum of mixed economies from command to free enterprise.
Economic Systems
Free Market
Free Enterprise
Command
Economy
Communism Socialism Capitalism
High degree of
government
Control
©2012, TESCCC
Some Public
Ownership
(land and/or
natural
resources
Low degree of
government
control
Different countries make different
decisions about where on the
spectrum they should fall
What are some commodities that the government acting as the
representative of the people can provide more efficiently than a
private individual or corporation?
• What do some possible public goods that other countries provide to
their citizens that the United States does not provide?
• What are some public goods that the United States provides to her
citizens that other countries do not?
Role of Government
• Governments provide public goods and services that
individuals acting alone could not provide efficiently.
• Things like roads, the military, and education are services that
the government helps to fund. It would be too expensive for
private business to provide these services to the public.
See overhead for slide
Do Exercises 52 and 53 on role of government
What is a public good?
• An item whose consumption is not decided by the individual
consumer but by society as a whole, and which is financed by
taxation.
•
• A public good (or service) may be consumed usually without
reducing the amount available for others, and cannot be
withheld from those who do not pay for it. Public goods (and
services) include economic statistics and other information,
law enforcement, national defense, parks, and other things for
the use and benefit of all. No ‘market’ exists for such goods,
and they are provided to everyone by governments. See also
good and private good.
The Constitution and
Government
• •The Continental Congress’ lack of taxation and borrowing
powers nearly lost the Revolutionary War, so the writers of
the Constitution immediately established Congress’ powers to
do both.
• •Large portions of the Constitution are designed to do
nothing more and nothing less than to create the basis for a
sound economy.
• •The Constitution also (and importantly through its impact on
the nation’s economy) created the basis for a true unification
of the states into a nation.
• •The Founders clearly recognized both the potential
economic benefits and costs of government actions, and
sought to design a document that would enhance those
benefits and reduce those costs.
The Constitution and Government
Exercises on the Constitution and the Economy
©2012, TESCCC
Role of Government
• The government
promotes and regulates
competition.
• Ways the government
promotes marketplace
competition
• Enforcing antitrust
legislation to discourage
the development of
monopolies
• Engaging in global trade
• Supporting business
start-ups
Role of Government
• How do governments
produce public goods
and services?
• Through tax revenue
• Through borrowed
funds
Role of the Government
• How does government
spending affect
economic activity?
• Increased government
spending increases
demand, which may
increase employment
and production;
decreased spending
reduces demand, which
may result in a slowing
of the economy.
• Increased government
spending may result in
higher taxes; decreased
government spending
may result in lower
taxes.
Role of the Government
• What is the role of the
United States
government in
protecting consumer
rights and property
rights?
• Individuals have the right
of private ownership,
which is protected by
negotiated contracts that
are enforceable by law.
• Government agencies
establish guidelines that
protect public health and
safety.
• Consumers may take
legal action against
violations of consumer
rights.