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Types of Economic Systems September 15, 2014

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Types of Economic Systems September 15, 2014 September 15, 2014 Types of Economic Systems September 15, 2014 Economic Spectrum Zoo Game Reserve Jungle Planned Economy Mixed Economy Market (Cuba, China North (Canada) Korea) Economy (United States) more gov't involvement less gov't involvement September 15, 2014 Market Economy The United States - AKA Laissez-Faire, Capitalism, Free-Market, Free-Enterprise, Jungle 1. Resources are privately owned. 2. Individuals make decisions on how to use resources. 3. Individual consumers drive economic decision making by choosing what to buy ("supply and demand") ***Competition September 15, 2014 Mixed Economy - AKA Game Reserve 1. Some resources are publicly owned and some are privately owned. 2. Individuals and gov't both make decisions about what to produce (partly "Supply and Demand"). 3. Individual consumers and government influence economic decision making.***Competition September 15, 2014 Planned Economy Cuba China North Korea - AKA Command Economy, Centrally-Planned Economy, Zoo 1. Resources are publicly owned. 2. Government makes decisions about how to use resources. 3. Individual consumers have little influence on economic decision making.*** Almost NO Competition September 15, 2014 Jungle VS. Zoo How would you describe a Jungle? How would you describe a Zoo? September 15, 2014 Jungle VS. Zoo How would you describe a Jungle? How would you describe a Zoo? September 15, 2014 Which economies do these two metaphors describe? Jungle Market Economy OR Free Market OR Capitalism Zoo Centrally Planned Economy September 15, 2014 How would you describe a "Game Reserve"? Which economy is most like a Game Reserve? Mixed Economy September 15, 2014 The American Economy September 15, 2014 Capitalism * System in which private individuals own the factors of production * Adam Smith proposed this system – government has little to do with the economic system Laissez-faire “let people do as they choose” Another name for pure capitalism Free Enterprise System Another name for capitalism The basic motivation in the Market Economy is to make $$$$$ ! September 15, 2014 Some Important Characteristics of the Free Market Economy Profit *Money left after the factors of production have been paid Profit Incentive * Desire to make money * It is what motivates people to produce and sell goods and services Private Property *Anything owned by individuals rather than the government Competition *Rivalry among producers or sellers of similar goods and services to win more business September 15, 2014 A Very Important Dude … Adam Smith Economist (1723 – 1790) Philosopher Father of the Market Economy Argued for “The Invisible Hand” - Adam Smith published the Wealth of Nations in 1776 - Foundation for understanding of capitalism - Defined Market, Laws of Supply and Demand - Thought that each person was pursuing their own best interest. - This meant maximizing profits September 15, 2014 Invisible Hand Invisible Hand - Term used by Adam Smith to describe the natural force that guides free market capitalism through competition for scarce resources. Each participant will try to maximize self-interest and enable each participant to be better off than when simply producing for himself/herself. NO regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services took place, since this "invisible hand" would guide market participants to trade in the most mutually beneficial manner. September 15, 2014 In a Market Economy .... Consumers have CHOICE! Consumer Sovereignty - The power consumers have in directing market economies because goods and services are produced and exchanged mostly to satisfy consumer wants. September 15, 2014 The goal of a market economy is to best meet the desires of consumers. The consumer is the king! September 15, 2014 Free Market Economy Positives Negatives September 15, 2014 Why Do Governments Intervene in a Market Economy? Canada is a Mixed Economy September 15, 2014 In a Mixed Economy such as Canada, the government plays a more active role than in a Free Market. Consumer choice AND Gov't intervention both play dominant roles September 15, 2014 Monopoly - a market in which there are many buyers but only ONE seller. What does this mean for prices? September 15, 2014 The Canadian Wheat Board was a gov't agency that some considered a monopoly because it marketed wheat in western Canada on behalf of all wheat growers. This meant the Wheat Board "set" the price of wheat - the price was not set by competition among wheat growers or their customers. September 15, 2014 *** The Wheat Board was officially abolished by the Canadian Gov’t in 2012 – and lead to private competition among producers. This action was a shift towards the ... ______________________________________ September 15, 2014 The Government Intervenes .... September 15, 2014 For example, the B.C. government started its own auto insurance program because it believed private insurers were making auto insurance too expensive. Aahh Man! These insurance prices are ridiculous!! September 15, 2014 In the United States, Microsoft Corporation had to adjust (based on gov't orders) its software product Windows to allow compatibility with browsers other than its own Internet Explorer. September 15, 2014 The Canadian Gov't passed the Competition Act to maintain and encourage competition in Canada in order to provide consumers with competitive prices and product choices..
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