Economic Systems Conclusion

Economic Systems Conclusion

Obj: Understand strengths and weaknesses of economic systems

ES: C-4 Explicitly assess information and draw conclusions

Agenda:

• Economic System Spectrum
• Marginal Analysis Demonstration

Command vs. Market

Remember, an economy is simply the mechanisms by which a central body enforces decisions about the allocation of their factor of production (WHO? WHAT? HOW?)

• Command-publically owned industry and a central authority is making decisions about production and consumption
• Market—production/consumption are a result of decentralized decisions from firms and individuals

***Who is answering the 3 key questions…

Failures: Command

• Public taste’s are difficult to predetermine
• Soviet Union routinely made incorrect predictions about what the people would want/need, thus,
• Their allocation of crucial raw materials was wasteful…shortages and inflations ran rampant
• Lack incentives!!! (rewards or punishments for certain choices)
• Imagine if you were a manager of a restaurant…
• No property rights---these drive people to produce things of value and put resources to their best possible use

Failures: Market

• Based on infinite growth, production, consumption
• All private individuals NEED to uphold morality and make responsible decisions (pollution and waste)
• Requires NO oversight from any government agency
• Markets can fail! When they do, how do they recover without complete devastation first?

The Economic System Spectrum

0
Command
10
Market

• These markets are imperfect, completely theoretical, and could never exist in the real world
• The strongest economic systems simply have the best mechanisms in place to achieve the goals society deems most essential

The Economic System Spectrum

0
Command
10
Market
United States???

The Economic System Spectrum

0
Command
10
Market
China???

The Economic System Spectrum

0
Command
10
Market
France???

The Economic System Spectrum

0
Command
10
Market
North Korea???

Economic Freedom Index

In Summation

• People within these central bodies are the decisions makers!!!
• No “correct” system…based on meeting societies needs in ways that they value
• PEOPLE’S RESPONSES TO DECISIONS ROOTED IN SCARCE FACTORS OF PRODUCTION.