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Economics Chapter 2
Economics Economics
Chapter 2 Chapter 2
What is an economic system?What is an economic system?
Reflects the process or system a nation or society follows to produce goods and services.
Determines who answers the 3 basic economic questions.
Reflects the process or system a nation or society follows to produce goods and services.
Determines who answers the 3 basic economic questions.
What are the four types of economic systems?
What are the four types of economic systems?
1. Traditional2. Command3. Market 4. Mixed
1. Traditional2. Command3. Market 4. Mixed
The CatchThe Catch
Pure traditional, command, and market don’t exist, all economies today are mixed.
Pure traditional, command, and market don’t exist, all economies today are mixed.
Traditional Economies Features
Traditional Economies Features
Based on custom and traditionsChildren often carry on the role of
their parentsIf parents were fisherman, you will be
fishermanSharing is the main goal of these
systemsGoods and services produced are
distributed among group’s members
Based on custom and traditionsChildren often carry on the role of
their parentsIf parents were fisherman, you will be
fishermanSharing is the main goal of these
systemsGoods and services produced are
distributed among group’s members
Traditional Economies Features
Traditional Economies Features
Work to benefit everyone, rather than focus on individual needs
How are the three basic economic questions answered?
Work to benefit everyone, rather than focus on individual needs
How are the three basic economic questions answered?
Traditional - Aborigines of Australia
Traditional - Aborigines of Australia
Command Economies Features
Command Economies Features
Individuals under this system are left with little say
Pure command died out with the feudal system in EuropeKing and Queen – power and money
How are the three basic economic questions answered?
Individuals under this system are left with little say
Pure command died out with the feudal system in EuropeKing and Queen – power and money
How are the three basic economic questions answered?
Command – Middle Ages Europe
Command – Middle Ages Europe
Market Economies Features
Market Economies Features
Self Interest = impulse that drives people to fulfill their needs and wantsDo what you want, no government control
Incentive = is anything that encourages you to behave in a particular wayFinancial reward (bonus); Financial Penalty
How are the three basic economic questions answered?
Self Interest = impulse that drives people to fulfill their needs and wantsDo what you want, no government control
Incentive = is anything that encourages you to behave in a particular wayFinancial reward (bonus); Financial Penalty
How are the three basic economic questions answered?
Invisible Hand?Invisible Hand?
Adam Smith
While individuals work to meet their own needs and wants, self-interest acts as an “invisible hand” that leads them to do what is best for society
Adam Smith
While individuals work to meet their own needs and wants, self-interest acts as an “invisible hand” that leads them to do what is best for society
Mixed EconomiesMixed Economies
Combination of the 3 models previously discussed
1. Authoritarian Socialism (Communism)
2. Democratic Socialism 3. Capitalism
Combination of the 3 models previously discussed
1. Authoritarian Socialism (Communism)
2. Democratic Socialism 3. Capitalism
Authoritarian Socialism(Mixed Economy #1)
Authoritarian Socialism(Mixed Economy #1)
Close to commandCommand – King & Queen work for the
wealthyCommunism – a dictator tries to ensure
everyone is equal Limited decision making for
individualsGovernment controls or owns nearly
all factors of production
Close to commandCommand – King & Queen work for the
wealthyCommunism – a dictator tries to ensure
everyone is equal Limited decision making for
individualsGovernment controls or owns nearly
all factors of production
Authoritarian Socialism
– Totalitarian Governments
Authoritarian Socialism
– Totalitarian GovernmentsGermany, under Adolf Hitler the USSR, under Joseph StalinChina, under the Communist rule of
Mao Zedong Italy under Benito Mussolini North Korea under Kim Il Sung Syria under Hafez al-Assad Iraq under Saddam Hussein
Germany, under Adolf Hitler the USSR, under Joseph StalinChina, under the Communist rule of
Mao Zedong Italy under Benito Mussolini North Korea under Kim Il Sung Syria under Hafez al-Assad Iraq under Saddam Hussein
Democratic Socialism (Mixed Economy #2)
Democratic Socialism (Mixed Economy #2)
Considered to be the middle ground between authoritarian socialism and capitalism
Government ownership of some of the factors of production (utilities, telephone, airlines, etc.)EX. France, Sweden, Netherlands
Election of government officials
Considered to be the middle ground between authoritarian socialism and capitalism
Government ownership of some of the factors of production (utilities, telephone, airlines, etc.)EX. France, Sweden, Netherlands
Election of government officials
Capitalism (Mixed Economy #3)
Capitalism (Mixed Economy #3)
Closest to marketMarket has NO government regulations
Free to catch as many walleyes as you want
Government does enact regulations to guide business and protect citizensRegulations on FishingTaxes
Private ownership and free choice are strongly emphasized (Basis of Capitalism)
Closest to marketMarket has NO government regulations
Free to catch as many walleyes as you want
Government does enact regulations to guide business and protect citizensRegulations on FishingTaxes
Private ownership and free choice are strongly emphasized (Basis of Capitalism)
Capitalism (Mixed Economy #3)
Capitalism (Mixed Economy #3)
Individuals own factors of production and answer the 3 basic economic questions
Ex. Canada, Mexico, Japan, United States
Individuals own factors of production and answer the 3 basic economic questions
Ex. Canada, Mexico, Japan, United States
CapitalismU.S., Canada, Mexico, Japan
CapitalismU.S., Canada, Mexico, Japan
Goals of United States Economy
Goals of United States Economy
FreedomEfficiency Security StabilityEquityGrowth
FreedomEfficiency Security StabilityEquityGrowth
Goals:FESSEGGoals:FESSEG
1. Freedom-choose occupation.Business free to change and grow.Investors free to decide what to do
with their money.
1. Freedom-choose occupation.Business free to change and grow.Investors free to decide what to do
with their money.
Goals:FESSEGGoals:FESSEG
2. Efficiency- Make best use of our scarce
resources.- Can be measured by how many goods
and services a nation’s workers produce.
2. Efficiency- Make best use of our scarce
resources.- Can be measured by how many goods
and services a nation’s workers produce.
Goals:FESSEGGoals:FESSEG
3. Security-Protect members from poverty,
business failures and bank failures, acts of terrorism, and internet crimes
Individual can purchase different types of insurances.
Government promotes security through unemployment compensation, insuring bank deposits.
3. Security-Protect members from poverty,
business failures and bank failures, acts of terrorism, and internet crimes
Individual can purchase different types of insurances.
Government promotes security through unemployment compensation, insuring bank deposits.
Goals:FESSEGGoals:FESSEG
4. Stability- Strive for full employment: lowest possible level of unemployment in the country- Price stability: overall prices remain constant
4. Stability- Strive for full employment: lowest possible level of unemployment in the country- Price stability: overall prices remain constant
Goals:FESSEGGoals:FESSEG
5. Equity- Fairness- Right and wrong- All members of society share costs
and benefits.- NOT equality
5. Equity- Fairness- Right and wrong- All members of society share costs
and benefits.- NOT equality
Goals:FESSEGGoals:FESSEG
6. Growth-Increase the amount of goods and
services produced by each worker-allows consumers to increase
consumption- Increase the standard of living.
- Measured by how much the average person in that country is able to consume in a given period of time
6. Growth-Increase the amount of goods and
services produced by each worker-allows consumers to increase
consumption- Increase the standard of living.
- Measured by how much the average person in that country is able to consume in a given period of time
PrioritiesPriorities
Individuals, businesses, and the government decide which goals are most important to them.Needs and wants often conflict
Individuals, businesses, and the government decide which goals are most important to them.Needs and wants often conflict
Priorities Can ChangePriorities Can Change
1970’s : dramatic price increases encouraged many people to focus on stability
1980’s : concerns about unemployment and low productivity encouraged focus on security and growth
2013:
1970’s : dramatic price increases encouraged many people to focus on stability
1980’s : concerns about unemployment and low productivity encouraged focus on security and growth
2013:
Priorities Can ConflictPriorities Can Conflict
People have differing goalsFargo Flood residents vs.
Minneapolis residentsFargo during flood: What goals?Now?
Minneapolis: ?
People have differing goalsFargo Flood residents vs.
Minneapolis residentsFargo during flood: What goals?Now?
Minneapolis: ?
Mystery IslandMystery Island
Imagine you end up with 200 people on Mystery Island.What type of mixed economic system
would you set up? WHY?What would be your TOP 3 Economic
Goals? WHY?List 3 Economic RULES/LAWS you
would institute.
Imagine you end up with 200 people on Mystery Island.What type of mixed economic system
would you set up? WHY?What would be your TOP 3 Economic
Goals? WHY?List 3 Economic RULES/LAWS you
would institute.
