How do economic systems answer your basic economic questions? What to produce How to Produce For whom to produce Answers the basic economic questions by rituals, habits, religious beliefs, and customs Individual roles are determined the elders Examples: herding cattle, hunting and gathering, subsistence farming There is little or no uncertainty- everyone knows the role they play Life is generally stable, predictable, and continuous Tends to discourage new ideas and new ways of doing things Lack of progress lowers the standard of living 1. What to produce? Whatever customs and traditions dictate 2. How to produce? Whatever customs and traditions dictate 3. For whom to produce? Whatever customs and traditions dictate Basic Economic Questions are answered by the government Only two Command Economies left in WorldCuba and North Korea It is associated with communism and socialism The government has total control over production and its factors, thus the economy can change rapidly. Whatever is needed most will be produced Example is collective farms which are owned and operated by the central government. Money made goes to the government Free education, free healthcare, and other public services Economy is designed to meet needs not wants There is no incentive to work hard—people don’t often lose their jobs so they do the bare minimum Economy supports a large bureaucracy (government) which means decision making is slow, costs of production are high, and there is no flexibility There is no reward for initiative 1. What to produce? Whatever the government says to produce 2. How to produce? However the government tells you to produce 3. For whom to produce? For whomever the government tells you to produce Basic economic questions are answered by consumers Laissez-faire is a pure market economy meaning “allow to do”. The government has little or no power in what is produced or sold. Free-enterprise system- business owners set their own prices and sell their own goods. Adjusts to change based on consumer wants High level of individual freedom Low level of government interference Because individuals make the decisions, everyone has a voice in the way economy runs Wide variety of available goods and services Many choices=high degree of consumer satisfaction Poverty: only those with money can participate Market does not provide for people’s basic needs. Government must attempt to do this (Think about Katrina) High degree of uncertainty: people lose their jobs and businesses fail Greed based system puts profits before people (think about loss of jobs here. What caused it?) Are they truly Free market economies? Does the government regulate businesses? Does the government control any businesses? 1. What to produce? Directed by the consumers. 2. How to produce? Companies decide cheapest and most efficient means of production. 3 For whom to produce? The consumer that has the ability and money to afford the companies product. An economy is considered a mixed economy when there are characteristics of more than one economy evident. For example, the United States is a mixed economy because there are privately owned businesses that operate on their own like a market system but they are regulated by the government also.