Transcript Economic Systems

Economic Systems
Decision Making
Chapter 2
Goals & Objectives
1. Characteristics of Traditional, Command &
Market Economies.
2. Advantages & Disadvantages of 3 Types of
Economies.
3. Economic Social Goals and Performance.
4. Trade-offs among economic & social goals.
5. Characteristics of Free Enterprise.
6. Role of the entrepreneur, consumer and
government in a free enterprise economy.
An Economic System?
An Organized way of providing wants and
needs (Individual or Governmental)
1. Traditional: Examples
2. Command: Examples
3. Market: Examples
Traditional
Ritual, habits, customs from elders and
ancestors: your current political
viewpoints are traditional (Amish Society)
ADVANTAGES: everyone understands
their role, What to produce is
predetermined, For Whom is decided by
tradition
Amish Society
Traditional
DISADVANTAGES: discouraged to act
outside of tradition and custom, creates a
lower monetary standard of living.
Explain: Why are traditional societies poor
in comparison too industrial societies or
free market/capitalist societies?
Haiti’s Traditional Economic
System
Command Economies








Central Authority decides (China, India, Sweden, Mexico)
What to produce?
How to produce?
For Whom to produce?
Factors of production are mandated by government
Factors of production are answered through a
democracy (VOTE) EEOC, Affirmative Action, NLRB, IRS,
ICC, FTC, etc..
No Constitution or Guaranteed Rights of the People
No Property Rights
Command Advantages
Change can take place quickly:
Mandated labor, jobs, services,
quotas, production OR Prison
Public services are available to
everyone regardless of income.
– Cosumer wants are mostly ignored or in
short supply
– TINSTAAFL vs. Trade Offs: Explain…
Economys/Communism &
Slavery
Command Disadvantages
Wants are not met. (Poverty)
Lack of consumer goods.
No incentive to produce (diminished
incentive)
Large Bureaucracy & high taxes on
business and labor
Difficulty dealing with day-to-day
problems: Consumer shortages
Market Economies
•
•
•
•
What to produce? Individual
How to produce? Individual
For Whom to produce? Individual
Decided by the individual buyer and seller.
The producer and consumer controls the
market without bureaucratic interference,
regulation or taxation.
Market Advantages
• Can adjust to change to satisfy all
consumer needs and wants
• High degree of individual freedom
• Little government interference; low taxes
• More democratic: Protects property rights
• Rich, plenty of resources and wealth
• High degree of Consumer satisfaction
Growth of Government Creates
a Shrinking Middle Class
Market Disadvantages
Basic needs are not guaranteed to everyone
Jobs & Profits are not guaranteed
Risk Reward Relationship
Freedom of Opportunity vs. Economic
Equity
**Explain:
Economic and Social Goals
• 1. Economic Freedom:
Examples
• 2. Economic Efficiency
• 3. Economic Equity
• 4. Economic Security
• 5. Full Employment
• 6. Price Stability
• 7. Economic Growth
• 8. Future Goals
Economic Freedom &
Free Markets
• Free to choose
• Freedom to Fail
• Freedom to own private
property
• Economic Freedom and Political
Freedom are cornerstones of
American society
Economic Equity &
Mixed Markets
•
•
•
•
Fairness, Justice & Impartiality
Lemon Laws:
False Advertisements:
Equal Pay for Equal Work:
Economic Security &
Command Economies
1. Unemployment Compensation
Insurance:
2. Social Security
3. Medicare
4. SSI:
5. Food Stamps
6. Obamacare
Obamacare & Death
Panels (Single-Payer Plan)
Full Employment & Free
Markets
• People producing goods and
services
• Increased production equals
low consumer prices
• Lower consumer prices equals
greater individual wealth
Price Stability & Mixed
Economies
1. Inflation: Government
interference through
regulations, quotas, taxes and
government owned monopolies
causes a general rise in the
level of prices designed to
benefit some producers profits
Gov’t-Demand Pull
Inflation (Health Care)
Economic Growth &
Free Markets
• Capitalism & Laissez Faire
economics increases the
production of goods and
services.
Free Market=Freedom
Trade-offs among Goals
1. Increased government security
and equity reduces individual
freedom, goods and services
Socialism’s Assault on
Freedom
Capitalism and Free Enterprise
 Capitalism:
 Private citizens
own the factors of
production with
some government
regulations
 Free Enterprise
 Private citizens
own the factors of
production with no
government
interference
 Corporations:
Personhood status
with government
protections &
benefits
 Private business:
 No government
protections or
benefits
Free Enterprise Characteristics
1. Economic Freedom
2. Voluntary Exchange
3. Private Property Rights
4. Profit Motive
5. Competition
READ: Know one example of each
Rich vs Poor Nations (People)
Economic Freedom
Freedom to choose their occupation,
employment, employees, business.
Freedom to hire and fire
Freedom to receive additional pay, bonus
or promotion
Freedom to set prices high or low.
Freedom to sell
Little to No government interference
Voluntary Exchange
1. Freedom to retain own money.
2. Freedom to spend, buy, or purchase.
3. Freedom to save or invest.
4. Freedom to use money to serve the best
interest for both the buyer and seller.
Gov’t Exchange vs Voluntary
Exchange
Private Property Rights
Freedom to own and control their labor,
possessions and capital.
Freedom of property: work, save, invest
Freedom to be successful
Profit Motive
Risk + Work + Time = Reward
Entrepreneurs: Business owners, Risk
Takers, Job Creators, Tax Payers
– Profit:
– Profit Motive:
– Competition:
Role of Entrepreneur

90% of all businesses fail.


Why? Freedom to Fail
Risk-taking
Why? Freedom to succeed
 Creativity:



Opportunity Cost
Why has the federal government bailed out
BIG corporations? Who benefits? Who pays?
Consumer Sovereignty
A free market
 NOT
 A regulated market


Explain: Obamacare/ Affordable Care
Act violates consumer sovereignty.

Mixed Market/Socialism Role of
Government in our Economy
1.
 2.
 3.
 4.

Protector
Provider and Consumer
Regulator
Promoter of National Goals
Protector
National Labor Relations Board
 Security Exchange Commission
 Food & Drug Administration
 Health & Human Services
 Department of Commerce
 Equal Employment Opportunity
Commission
 ETC……..

17.4 Trillion in Debt created by
Gov’t for the People
Government Provider & Consumer
Social Security & Medicare
 Obamacare/Affordable Care Act
 Bailouts & Subsidies
 Housing, Food Stamps, Free College
 Set-Aside Contracts

Government Regulator
Government regulated: Auto & Home &
Health Insurance
 Telecommunicaiton regulations
 Banking regulations
 Housing regulations
 Stock Market regulations

Promoter of National Goals
Government regulation of all interstate
commerce
 Government regulation of all labor
 Government regulation of all business
activity


Socialism and Command Economies