Modern Economic Systems Bellwork: What is an Economic System? An economic system is the method used by a society to produce and distribute goods and services. How are Households similar to Society? Like an Society, Households face many decisions. Examples? Who does which tasks? Who cooks dinner? Who does laundry? Who chooses what TV show to watch? Who cleans the bathroom? Like an Society, Households must allocate its scarce resources amongst its various members, taking into account each member’s abilities, efforts and desires. Like a household, societies faces many decisions Similarities Continued… A society must decide what jobs will be done and who will do them. (Farmers grow food, designers make clothing, computer techs create software programs, etc) Both have to decide roles in order to get things done!! Once society does this, they must decide the output of goods and services that these people will produce. What is Scarcity? Scarcity is the fundamental economic problem of having unlimited human wants in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs. Because of scarcity each economic system must answer three basic economic questions. These questions are…. The Three Basic Economic Questions What to produce? How to produce? For whom to produce? Each economic system answers these questions in different ways. What is capital? What is a Market? Capital is wealth in the form of money or other assets owned by a person. This could be anything from land, money, technology/equipment, which are then used to produce goods and services. A market is a group of buyers and sellers of a particular good or service. Traditional Economic System Economic Decisions- relies heavily on habit, custom, or ritual to answer the three economic questions. Typically focus on one particular method of livelihood such as hunting, agriculture and barter (exchange). Role of Government-no specific role Ownership- None. Typically found in remote areas around the world. (rural and farm-based). Examples of Traditional Many of the African countries which use agriculture as their main basis for growing food and for jobs. In addition some Asian countries, such as Bangladesh and Burma also rely on farming as their main way for both employment and for producing food for the family. Market Economic System Economic Decisions-Based on laws of supply & demand. Role of Government- No Government intervention (pure Laissez-Faire) Ownership -Owners of capital are free to produce/sell whatever quantities of any goods for which they believe there is a market. Example -“Pure” market economy does not exists. US is closest. Mixed Economic System All modern economic systems are some type of mixed system. Economic Decision combines elements from traditional, command, and market systems. Role of Government -Range of some level of Government intervention. Ownership -Some individual ownership, some government control or ownership. Some economic systems are more heavily based upon one of the basic forms of economic systems than the others. Examples of a Mixed Economy The U. S factors of production are owned by the private sector, BUT government does get involved in decisions: Determines what infrastructure will be built, passes laws putting regulations on private industry (EX: minimum wage laws and anti-pollution laws). China’s government lets some industries be controlled by market forces, while at the same time totally controls other (usually larger) industries. Command Economic System Economic Decision - based on planning by central government planners. Government Role -Government is involved in all aspects of economy and makes all decisions-what to produce, how to produce it, and who to produce it for. Ownership -Government owns most, if not all industries and businesses. Command economic systems are typically found within communist political systems. Although no “true” command economy exists today. Closest Example of Command Economy • Cuba has had a communist political system since 1959. • The present Constitution also ascribes the role of the Communist Party of Cuba to be the "leading force of society and of the state" and as such has the capability of setting national policy. Examples of Economic systems Now that you have learned about each type of economic system you are going to look at the examples on your notes page and fill in the blank of each example with the correct economic system. Then you and your group will then make up an example for each on your own and place it in the correct economic system category. Exit Slip: Economic spectrum Now that you’ve learned about the different types of modern economic systems we are going to draw an economic spectrum on the board place the vocabulary/countries listed in the correct places where they lie in relation from command to market system.