Chapter 2 Economic Systems
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Transcript Chapter 2 Economic Systems
Chapter 2, Section 1
Economic Systems
Essential Question:
Identify the three “pure” economic systems
and explain how the 3 basic questions are
decided in each.
Explain why “pure” E.C. do not exist
Identify the three “mixed” economic systems
and explain how the 3 basic questions are
decided in each.
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Chapter 2, Section 1
Economic Systems
Economic Systems:
All societies have an economic system or
economy, an organized way of providing for
the wants and needs of the people in that
society
Economic System-> Economy (same thing)
Economic Model= possible, but non-realistic
economic system.
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Chapter 2, SECTION 1
Economic Systems
What/How/Who Traditional:
Traditional economic model
What to produce and how to produce are determined by
custom and tradition
For who to produce is decided by the leaders of the
community
Pro’s- Everyone knows what to produce (no
uncertainty
Con’s- new ideas and alternatives are discouraged
leading to waste.
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Chapter 2, SECTION 1
Economic Systems
What/How/Who Command:
Command economic model
All three basic economic questions are answered
by a central authority (govt.) The advantages- Major changes in production can
happen quickly, little uncertainty about what to
produce (govt. tells you what to produce)
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Chapter 2, SECTION 1
Economic Systems
What/How/Who Command (cont.)
The Disadvantages:
Consumer needs not met
Little incentive to work hard
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Chapter 2, SECTION 1
Economic Systems
What/How/Who Market:
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Market economic model
3 basic questions answered by private producers
and consumers with NO interference (govt.)
The advantages Can make production changes quickly
Producers and Consumers are free to buy/sell (or
not)
Most members of this system get their needs
met
Variety of Goods and Services
high consumer satisfaction
Chapter 2, SECTION 1
Economic Systems
What/How/Who Market (cont.)
The disadvantages Does not provide for the needs of all in the society
(only those who can afford goods or services).
Does not provide enough important non-profit
services such as education or health care
Lots of uncertainty about the answers to the 3 basic
questions (you don’t know what will be produced
for you OR what you will produce)
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Chapter 2, SECTION 1
Economic Systems
What do the “models” have in common?
They DO NOT EXIST
In modern society, scarcity does not allow
for Pure economic models where the rules
are inflexible.
As a result we have mixed economies based
upon the economic models
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Chapter 2, SECTION 1
Economic Systems
What is a mixed economy?
All MODERN economies are mixed btwn. Govt. and
the people
Why mixed? Both people and govt. need to give input
to ensure that the needs of society are addressed
Even in oppressive countries like N. Korea, people are
allowed to make SOME economic decisions.
There are three examples of “Mixed Economies” The
differences are based on how the 3 basic economic
questions are answered.
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Chapter 2, SECTION 1
Economic Systems
Authoritarian Socialism (Communism)
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In this Economy, the govt. makes almost all
economic decisions and controls all the
factors of production.
The govt. answers most of the 3 basic
economic questions based on the NEEDS of
ALL members of society
This system puts the needs of all above the
wants of any.
Chapter 2, SECTION 1
Economic Systems
Capitalism
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In this Economy, the people make most of the
economic decisions with limited oversight by the
government.
The factors of production are owned by individuals
who produce based on what makes the most profit
(usually what satisfies the greatest needs of
society).
Since individuals control the production decisions,
they also control the price meaning that sometimes
people do not receive the goods/service that they
need b/c they cannot afford it.
Chapter 2, SECTION 1
Economic Systems
Democratic Socialism
This economic system is seen as being in the
middle of communism and capitalism.
Some of the factors of production are owned by
govt. and some are controlled by individuals.
The idea is that certain products such as
education or health care are universal and as
such should not be limited to only those who
can afford it.
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