Download Economic Systems - Siegel High School

Economic Systems
Business Economics
Objectives
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Three Economic Questions
The Economic Systems
Examples of Countries
Research Project
Three Economic Questions
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All economies must answer
these three questions:
1. What goods and services
will be produced?
2. How will they be
produced?
3. For whom will they be
produced?
Country use & distribution of
scarce resources
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History
Culture
Geography
Political Situation
Various of factors
Economic System
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An economic system is the
method used by a society to
produce and distribute
goods and services.
Some questions to ask:
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Who owns the resources?
What decision-making process is
used to allocate resources and
products?
What types of incentives guide
economic decision makers?
Political & Economic
Philosophies
Capitalism
Communism
Socialism
1. Marketplace
competition
2. Private
ownership of
business
3. Successful
employers &
employees prosper
4. Some social
services
5. Some gov’t
regulations
1. Usually
authoritarian
2. Controls factors
of production
3. Assigned jobs
4. Goods given
according to need
5. No financial
incentive to
increase
productivity
1. More gov’t
involvement in
economy & social
services
2. Tax rates high
3. gov’t may run
key industries
4. gov’t makes
many economic
decisions
Communism
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The gov’t, usually authoritarian, controls the factors
of production
No private ownership of property or capital
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The theory is that goods owned in common are available
to a classless society on an as needed basis
People are given jobs based on their abilities
They are given the goods that fit their needs
Characteristics
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All people who are able to work are assigned jobs
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Theoretically, there is no unemployment
Employees who do not go to work continue to get paid
The gov’t decides the type of schooling everyone
gets and tells people where to live
Housing accommodations are assigned according
to need
Characteristics
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Food & housing subsidies (aids) keep prices low so
everyone has a place to live and food to eat
Medical care is free
Little or no economic freedom
No financial incentive for people to increase
productivity
Want to be entrepreneurs cannot start their own
business
Strong Command Economy
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The gov’t owns and
controls
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Factories,
equipment, land
Leaders answer the
3 basic questions
Political structure
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Communism
Command Economy
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Influenced by commands, directives or
central authority
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One person, small group who control
society
Members of society carry out demands
Kim Jong II
Fidel Castro
Economies in Transition
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Prior to the Soviet Union breakup, Poland owned
approx 80% of the country’s productive assets
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After the breakup, it owned only 55%
Poland welcomed private investors that wanted to
buy its state-run factories, which were inefficient &
non productive
Privatization vs. Nationalization
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Privatization – the processes of gov’t selling
gov’t-owned businesses to private
individuals/businesses
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Generates much needed revenue
Demonstrates a high level of commitment to
making the transition to a market system
Can help balance budgets
Privatization vs. Nationalization
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Nationalization – the gov’t takes over
private-held companies
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Transfer of ownership may be due to an
economic crisis, a political upheaval, or a
change in gov’t policy
Developing Economies
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Mostly poor countries with little industrialization
Trying to become more prosperous & develop infrastructure
Success depends on the education of the labor force
Chad, an African Country, is a developing country
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Traditional economy based on agriculture & livestock farming
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Cotton, cattle, & gum arabic are its primary exports
An oilfield & pipeline project paid by foreign investors has helped
Chad develop its oil reserves for export
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This will help Chad with much needed funds for this poor nation
Traditional Economy
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Shaped largely by
custom or religion
Family relations
play significant
roles in economic
activity
Same methods of
production are
used
Roles are
narrowly defined
Traditional Economy
Advantage
 Everyone has a
role in it
Disadvantage
 Discourage new
ideas and way of
doing things
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Rain forests of
Latin America
Parts of Africa
Middle East
Socialism
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Originally referred to a system on its way to the
communist ideal of a classless society
Today, most countries that are defined as this, have
democratic political institutions
They differ from capitalist nations because of the
increased amount of gov’t involvement
Main goal is to meet basic needs for all & to provide
employment for many
Characteristics
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Tend to have more social services to ensure a
certain standard of living for everyone
Medical care & education are free or inexpensive
Systems for pensions and elderly care
Businesses & individuals pay much higher taxes
than those in capitalist countries
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Taxes contribute to financing the gov’t
Examples of Socialist Countries
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The gov’t runs key industries & makes economic
decisions
State-controlled, noncompetitive companies are
often found in industries such as:
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telecommunications, natural resources (such as gas,
water, & power), transportation, & banking
Canada, Germany, & Sweden are generally
characterized have having socialist elements in
their economies
Moderate Command Economy
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Political structure =
Socialism
Gov’t owns major
industries
 Railroads, steel &
iron industry
Limited opportunities
for private ownership
Sweden
France
Problems with Centrally
Planned Economies
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Consumers get low
priority
Little to No freedom of
choice
No reward for innovation
How much should be
produced?
Typically results in
surpluses and shortages
Invisible Hand of Markets
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According to economist Adam
Smith (1723–1790), market forces
coordinate production as if by an
“invisible hand.”
Laissez Faire
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18th century economic theory
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“Let it be economics”
Stands for “Leave Alone”
Strongly oppose government
intervention in business affairs
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Against minimum wage, duties (taxes on
certain goods) & trade restrictions
Capitalism
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Characterized by marketplace competition
and private ownership of businesses
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Same as free enterprise or private enterprise
An advantage is that successful employers
& employees prosper
Characteristics
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Government is concerned about its people
and cares for those who cannot care for
themselves
The gov’t also has some involvement in the
free market
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Policies and laws that affect the market
Must keep a balance between too much and too
little regulation
Political Foundations of
Capitalism
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The political system most frequently associated is
democracy
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These nations believe that political power should be in the
hands of the people
Usually more than one political party from which to
choose representatives to run the gov’t
People are free to elect those candidates who
agree with their philosophy on how the gov’t &
economy should be run
Political Foundations of
Capitalism
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The US and Japan are 2 examples of
countries that are classified as capitalist and
have a democratic form of government
Market Economy
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Regulation by government
is minimal
Economic activity
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Economic questions
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based on the prices generated
in free, competitive markets
Buyers & sellers
Referred to as Capitalism
Market Economy
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Economic decisions are based on
Buyers & Sellers
• Produce goods & services that will
provide profit
Sellers & Producers
Plusses & Minuses of
Market Economies
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Difficulty enforcing
property rights
Some people have few
resources to sell
Some firms try to
monopolize markets
“You need money to
make money”
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Freedom for
everyone to be
involved
Adjusts as
consumer wants &
needs change
Essential Question
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Why do most
countries
have a mixed
economy?
What Do You Like on a Sundae?
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What toppings do
you like on an ice
cream sundae?
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Plain Vanilla?
Or absolutely
everything (and I
mean everything)?
What Do You Like on a
Sundae?
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Chances are, you were somewhere
between plain and everything.
When discussing economies, most
countries are somewhere in between too.
When a country is not completely a
command economy and not completely a
market economy, but somewhere in
between, it is called a Mixed Economy.
Mixed Economy – “In
Between”
Most Countries Lie Somewhere in Between
-However, they may be closer to one
side than the other.
7 Roles of Government in a mixed
economy
1.
Establishing and
enforcing rules of
exchange
a.Property
rights
b.Contract law
7 Roles of Government in a mixed
economy
2.
Promoting competition/prevent
anticompetitive practices
7 Roles of Government in a mixed
economy
3.
Regulating natural monopolies
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One firm that can serve the entire market at
a lower per- unit cost than can two or more
firms
7 Roles of Government in a mixed
economy
4.
Provide public
goods
Technical
characteristics of
public goods:
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Non rival
consumption
High cost of
excluding those
who do not pay
7 Roles of Government in a mixed
economy
5.
Dealing with externalities
a.
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7.
Externality is a cost or
benefit that falls on third
parties and is therefore
ignored by the two parties
to the market transaction
Negative externality –
cost imposed on others
Positive externality –
benefit gained by others
Visibility Impairment from Air Pollution
Shenandoah National Park - Virginia
7 Roles of Government in a mixed
economy
6.
Redistribute income
President F.D. Roosevelt Signing the Social Security Act of 1935
7 Roles of Government in a mixed
economy
7.
Promote macroeconomic goals of:
a.
b.
c.
Full employment
Price stability
Economic growth
Monetary policy pursued by
the Federal Reserve
Fiscal policy pursued by the
Federal government
Examples of Economies
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5.
Traditional:
Philippines
Nigeria
Nicaragua
Sao Paulo
Mumbai
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4.
5.
Command:
Cuba
North Korea
China
Russia
Iran
2.
3.
4.
5.
Mixed:
Canada
Germany
Netherlands
United Kingdom
Italy
In-Class Research Project
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Objective of Project:
- For you to research and learn about
the economy of a specific country.
You will research a country of your
choosing.
The Instruction sheet will provide you
with clear directions.
What is the G20?
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Promotes international cooperation
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Global economic stability
Prevent future financial crisis
Argentina
Australia
Brazil
Canada
China
France
Germany
India
Indonesia
Italy
Japan
Mexico
Russia
Saudi Arabia
South Africa
Republic of Korea
Turkey
United Kingdom
United States
CIA World Factbook
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https://www.cia.gov/library/publications
/the-world-factbook/