Economic Systems Conclusion

Economic Systems Conclusion

Obj: Understand strengths and weaknesses of economic systems

ES: C-4 Explicitly assess information and draw conclusions

Agenda:1. Economic System Spectrum2. 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

0Command

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

0Command

10 Market

United States???

The Economic System Spectrum

0Command

10 Market

China???

The Economic System Spectrum

0Command

10 Market

France???

The Economic System Spectrum

0Command

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.