 Characterize differing economic systems in a diverse range of countries  Describe the advantages and disadvantages of a particular approach to classifying economic systems  Describe key characteristics of command, free-market, and mixed-market economies  Compare and contrast the strengths and weaknesses of the three main economic systems

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Command Economy

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Free-market economy

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Industrialization

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Intellectual property rights

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Market bubble

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Mixed-market economy

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Subsidy

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Welfare system

   You have been chosen to take part in an international committee responsible for deciding on which countries to locate three new businesses in, based on the type of economic system that would best ensure the business’s success To avoid bias, the committee members will not know the country name, only the key characteristics of the economic system under which it operates Before they make this decision, however, you must familiarize themselves with the key characteristics of the three types of economic systems in the classification called the Economic Systems Spectrum

 Download: Chart- The Economic Systems Spectrum  Review the three different idealized or extreme concepts of economic systems  The chart in the resource represents these notional “pure” forms of economic systems  In reality modern-day economies is much messier and more diverse

 Few countries work within economic systems that are purely command economies, or purely unregulated free market economies  Instead, their respective systems tend to fall at various points along the “spectrum” in this method of classification, which, reflect varying degrees of government involvement in daily economic decisions and actions

 Download: Worksheet- Three New Businesses  You have been introduced to the Economic Systems Spectrum (one of the many different ways economists classify differing systems)  You must work together to assess the implications of different economic systems for the three businesses  In which country would you start each of the businesses, based on the distinctive characteristics of its economic system?

 Why one country might or might not be preferable, based on the distinctive characteristics of its economic system, as a place to establish each particular business  While few countries run pure command economies today, and no countries operate pure unregulated market economies, there are great variations in how individual countries organize and run their businesses and economic activities

   Companies doing business in different economic systems have learned to adapt to each, proving that business success can often be achieved in most of the different economic systems in operation today North Korea represents the one example of a nearly pure command economy  Its economic problems (in sharp contrast to South Korea) can, to a large degree, be attributed to its economic system South Korea started out at a similar level of economic development in the 1950s, but is now far ahead.  But aside from such rare extreme cases, generalizations about economic systems in use in other countries should be made with caution

  A country’s particular material, economic, and commercial characteristics influence the type of economic system under which it operates Over time, different economic systems have shown themselves to be either more or less effective in addressing the primary economic questions faced by all economies:  What is produced    How it is produced Who it is produced for As well as other economic issues of wide concern       financial and economic stability economic growth the distribution of income Unemployment Inflation environmental destruction.

   You will discover that diverse economic systems have proven successful at responding to different countries’ needs at different times However, successes have also come at a price, making it clear that (as with other aspects of economics) there are trade-offs No single system is best in all circumstances

  Download: Vignettes- Pros and Cons of Different Economic Systems Countries chosen for these vignettes do not reflect examples of one “pure” economic system as described in the prior activity; rather, each country’s economy may exemplify some of the defining characteristics of such a system. The vignettes are about:    The former Soviet Union, with its command economy, and the relationship between that system and the country’s need for industrialization Venezuela, and its mixed-market system’s efforts to rectify social inequalities The United States and its free-market system’s relatively limited regulation of business, with both positive and negative consequences

 Divide class into 3 groups   Take 5 mins to discuss your topic in depth Now 1 person from each group form a new group  Explain to your teammates the example you read and the responses you gave to each question, along with the reasons why

 Depending upon the circumstances, countries’ economic systems have generally developed in one of two ways   They have either evolved slowly in response to the changing needs of businesses and individuals, as in the example of the US economy at end of the nineteenth century and the beginning of the twentieth They have made faster-paced, more radical changes in response to critical economic challenges, such as those that have taken place in China in the last 25 years

 Presentation

 What do you think is the best and worst thing about living within each of the three pure economic systems?

 Download: Vignettes- Comparing and Contrasting Economic Systems   Each young woman (and her family) depicted in the reading faced different economic decisions that were the result of the type of economic system in which she lived.

Even though each of the young women lived in a different system, the three womens’ lives had more commonalities than differences.

 Download: Worksheet- Venn Diagram  You will find a list of economic system characteristics that they must associate with each system represented in the diagram  Many of the characteristics are shared between at least two of the systems and in some cases among all of them

   There is not absolute agreement among economists about which characteristic belongs to which economic system due to the myriad forms in which each system now comes, and the fact that they change constantly Moreover, different businesses want and need different things from government in order to succeed  So a characteristic such as government-regulated pricing might be disliked by companies in the clothing industry because some labels build cachet through higher pricing, while it is often favored by taxi drivers as well as taxi passengers because it guarantees taxi drivers a minimum fare for every ride they pick up; reassures passengers who might otherwise be afraid of how much their ride might cost; and saves everybody from having to haggle over the price for every ride.

Businesses value each economic system based on the characteristics it holds and which of these characteristics best serves the businesses’ primary interests

 Different businesses and industries favor different economic systems  The degree of government involvement in the economy is seen by some firms as problematic, but by others as crucial to their success

    All economic systems must address three basic questions:  what is produced, how, and for whom Each system goes about answering these questions has enormous impact on the success of businesses operating within it In some cases certain industries might not exist without the help of government  Airbus, the European aircraft manufacturer, which was created by a consortium of European governments, though it was built up from pre-existing smaller, mostly shareholder-owned, companies Meanwhile, other industries find government intervention so costly as to make the business unprofitable  Insurance companies that have left the lucrative Florida car insurance market because the state has made the sale of [unprofitable] hurricane insurance a condition of the companies’ right to sell any insurance at all in the state

 Download: Worksheet- Industry and Economic Systems  The relationship between business and government is a major determinant of the differing economic systems in place in different countries

   The German government has long had an active role in the operation of that country’s economy Its involvement in supporting an industry that promises high-paying domestic employment opportunities and lower oil import bills reflects public policy objectives which are widely accepted in Germany.

In contrast, over the last 25 years, the US government decreased its level of direct involvement in the economy, so willingness to allow venture capital funds to operate with little regulation, and with tax laws that are favorable to partners and investors in these funds, reflects the role of venture capital in supporting new businesses and new job creation.

 Regardless of how involved or uninvolved government is, most economic systems today embody some form of balance between the economic interests of business and the role of government  In most systems, the two rely on each other to a substantial degree, even if there can also be tensions between government and business decision makers.

 Create your own short answer questions you would make if creating a test on this lesson

 Test  40 mins

 Could either government or business survive without the other? Why or why not?

 On the Internet or in the library, research the social, economic, and human cost of the “shock therapy” transition from communism and a command economy to a partially free market-based system in the former Soviet Union  Look not only at the difficulties that people in Russia and other parts of the former Soviet Union faced, but also at the lingering effects that just over 70 years of communism had on the expectations of the Russian people.

 History/Sociology: Research the rise of Chinese communism under Mao Tse Tung, and how he sought to connect some of aspects of a command economy to certain aspects of China’s cultural and philosophical heritage, while opposing other aspects of that heritage  Comment on reasons why China might or might not have been fertile ground for the implementation of a command economy  Use an inquiring approach, but also use critical discussion, and point out the risk, with such subject matter, of over-generalization.