ECONOMIC SYSTEMS 2. HOW SHOULD WE PRODUCE? 3. WHO WILL RECEIVE THE GOODS AND SERVICES?

Transcription

1 ECONOMIC SYSTEMS Every nation must answer three basic questions about goods and services. We call these questions the three basic questions of economics. They are WHAT SHOULD BE PRODUCED? 2. HOW SHOULD WE PRODUCE? 3. WHO WILL RECEIVE THE GOODS AND SERVICES? Answering these questions is not easy. In fact every country s leaders spend a great deal of time everyday trying to answer these questions ina way they think is best for their country. Sometimes a leader will ignore the needs of the people and look after his/her own interests.

2 How a country answers the three basic economic questions tells a great deal about the country. EACH AND EVERY COUNTRY has an ECONOMIC SYSTEM ECONOMIC SYSTEM: the rules a country follows in answering the three basic questions. There are four economic systems a) Traditional Economy: makes decisions based on what has been done in the past. People produce the goods and services that they have always produced. Ex. Haiti = fishing Africa = farming, herding Funeral Homes (usually family owned) Family Farm Amazon jungle tribes = Hunting

3 b) Command Economy/Communism: This is when the basic economic questions are answered by the gov t. only. The people have no say.**** Ex. Vietnam North Korea Cuba China The communism practiced in the countries above is also considered a DICTATORSHIP. ***it must be pointed out that pure communism is an economic theory. If you work for the good of the state the state will provide for you. Pure communism is only practiced in one place in the world...*** ISRAEL on Kibbutz (commune)

4 c) Market Economy (free economy): this is a system where all the economic questions and decisions are answered by the individual person. Sometimes called a price system because money is the language. EX. McDonald s Burger King CVS GAP gas station toy store d) Mixed Economy: Most countries in the world today have a mixed economy. It is part command and part market economy. Most governments have a say over the basic economic questions, but with latitude for individual decisions. France USA Canada England Israel Japan Germany Norway Mexico

5 CAPITALISM (free market, market economy, pure market, price system, mixed economy) Adam Smith: Scottish, economists & philosopher *idea of laissez faire: gov t. intervention in economics is NOT GOOD! laissez faire: *labor is the source of wealth -work hard, make money, buy goods and services *productive resources are owned and operated privately *capital ($) for production is obtained through the lure of profits in the market

6 *gov t. plays a limited role in the economy - U.S. is mostly capitalistic w/some gov t. interference. ~foreign trade ~nutritional information ~Food and Drug Admin. (FDA) ~environmental regs. ~protection for workers Pure market/price system is practiced in movies GAP Hannaford's The U.S. along w/countries that practice socialism are called MIXED ECONOMIES. market economy + gov t. intervention = mixed economy

7 COMMUNISM Karl Marx: German, educator, philosopher *came up with the theory of communism * believed, all human events & disasters have their roots in economics *Communism is an ECONOMIC THEORY All basic needs should be provided by the state: food, clothing, housing, education. And in return all should work for the good of the state. *Lenin took Marx s idea further: -those who run the country or are good publicity for the country get more -people not smart enough to make decisions so gov t. makes the decisions for the people characteristics of Communism: - everyone gets equal share -all productive resources are owned and operated by the gov t.

8 - planning board - gov t. plans ways to allocate all resources - gov t. draws up detailed orders to implement its economic plans COMPARE/CONTRAST CAPITALISM & COMMUNISM SOCIALISM Some basic needs should be provided or at least kept within a reasonable price for those people who are poor or on a fixed income. Gov t. owns and operates certain industries and institutions, especially those things that may be too expensive for avg. person.

9 EX: health care university prescription meds transportation for elderly Basic productive resources are owned and perated by the gov t. The rest are privately owned and operated. *coal mining (U.K.) *transportation -The Gov t. plans ways to allocate resources in key industries - The gov t. directs the completion of its economic plans in key industries. The U.S. practices some form of socialism *public schools *social security system *welfare programs