1 Other Problems in Centrally Planned Economies • (write one of the bold bullets in ‘disadvantages’ box ) • Expensive and inflexible government structure needed to manage the system • Sacrifice of individual freedoms to • follow goals / (not individual) but instead the goals of the society/government Command Economy • The government (or central authority) determines what, how, and for whom goods and services are produced. • Two types: – Strong Command – where government makes all decisions (communism – China, Cuba) – Moderate Command – where some form of private enterprise exists but the state owns major resources (socialism – France and Sweden) • Advantages – Guarantees equal standard of living for everyone – Less crime and poverty – Needs are provided for through the government • Disadvantages – Minimal choices – Fewer choices of items – No incentive to produce better product or engage in entrepreneurship • Also known as a Planned or Managed Economy
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Other Problems in Centrally Planned Economies Other Problems in Centrally Planned Economies • (write one of the bold bullets in ‘disadvantages’ box ) • Expensive and inflexible
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Other Problems in Centrally Planned Economies
• (write one of the bold bullets in ‘disadvantages’ box )
• Expensive and inflexible government structure needed to manage the system
• Sacrifice of individual freedoms to • follow goals / (not individual) but instead the
goals of the society/government
Command Economy• The government (or central
authority) determines what, how, and for whom goods and services are produced.
• Two types: – Strong Command – where
government makes all decisions (communism –China, Cuba)
– Moderate Command – where some form of private enterprise exists but the state owns major resources (socialism – France and Sweden)
• Advantages– Guarantees equal standard
of living for everyone – Less crime and poverty– Needs are provided for
through the government• Disadvantages
– Minimal choices– Fewer choices of items – No incentive to produce
better product or engage in entrepreneurship
• Also known as a Planned or Managed Economy
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Mixed Economies
• (write underlined information across first three questions)
• It is doubtable that any nation can exist successfully under a pure command economy or a pure market economy.
• Most economies mix features of both systems.
• (write underlined information across first three questions)
This image cannot currently be displayed.Continuum of Mixed Economies
Centrally planned Free market
Source: 1999 Index of Economic Freedom, Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick
Iran
North Korea
Cuba
China
Russia Greece Peru United States
South Africa France United Kingdom
Botswana Canada Singapore
Hong Kong
An economic system that permits the conduct of business with minimal government intervention is called free enterprise. The
degree of government involvement in the economy varies among nations. Nations are placed on a continuum (a range with no clear divisions) of mixed economies. On one end are centrally planned economies and on the opposite end are free markets economies.
Comparing Mixed Economies(write examples of countries to match the type of
economic system’s goals in last box on table)
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Mixed Economy• Combination of a
market and a command economy
• Government takes of people’s needs
• Marketplace takes care of people’s wants.
• Most nations have a mixed economy: United States, England, Australia
• Advantage —balance of needs and wants met by government and in marketplace
• Disadvantage —citizens have to pay taxes
An economic system is the method used by a society to produce and distribute goods and services.
Four Economic Systems
Traditional economies rely on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it.
In a centrally planned economy the central government makes all decisions about the production and consumption of goods and services.
In a market economyeconomic decisions are made by individuals and are based on exchange, or trade.
Mixed economies are systems that combine tradition and the free market with limited government intervention.
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• Every society has some system or mechanism that transforms that society’s scarce resources into useful goods and services.
Markets exist because none of us produces all the goods and services we require to
satisfy our needs and wants.A market is an arrangement that allows buyers and sellers to exchange goods and services.
Specialization is the concentration of the productive efforts of individuals and firms on a limited number of activities.
Why Do Markets Exist?
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Free MarketsThis image cannot currently be displayed.
This image cannot currently be displayed.
This image cannot currently be displayed.
monetary flow
physical flow
monetary flow
physical flow
Circular Flow Diagram of a Market Economy
Households Firms
• In a free market economy, households and business firms use markets to exchange money and products.
• Households own the factors of production and consume goods and services.
Advantages of the MarketEconomic Growth
• Because competition encourages innovation, free markets encourage growth.
Economic Freedom• Free market economies
have the highest degree of economic freedom of any economic system.
Additional Goals• Free markets offer a
wider variety of goods and services than any other economic system.
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Market Economy (Free Enterprise)• Also called a Free Market
Economy or Free Enterprise Economy (write under “Free Market Economy” on table
• Businesses and consumers decide what they will produce and purchase and in what quantities
• Decisions are made according to law of supply & demand (write under all 3 Questions (?) on table
• Supply and demand of goods and services determine what is produced and the price that will be charged.
• Advantage—competition to have the best products and services
• Disadvantage—huge rift between wealthy and poor
• Note: a true market economy does not exist.
Comparing Economic Systems
Economic System
• Traditional • Market • Command• Mixed
Who answers the 3 ?’s
• Customs• Individuals• Central Government• Individuals with some