Economic Systems

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Fundamental questions of production

What to produce?

How to produce?

For whom to produce?

An economic system is a set of laws, institutions, and common practices that help a nation determine how to use scarce resources to satisfy as many of its people's needs/wants as possible

Three ways of answering basic production question

Traditional Economy

Traditional skills are passed down from generation to generation.

Output doesn't change much year to year

Static society with long-term planning and focusing on daily challenges/survival.

Each family wants to be as independent as possible.

So what they are producing is strictly based on a family's specific needs.

Surplus of stuff made gets traded (barter).

A long time ago this was very common. People had modest needs which the surrounding environment provided.

Over time things have changed a bit...

Command Economy

Things are planned centrally. what to produce, how to produce it, and for whom to produce it is ALL answered by the government. For the best interest of the state.

Efficient allocation

People are obligated to serve the state. if you do your role, you get things you need (food, housing, medicine, education)

If you do an awesome job... You get perks and nicer things.

If you don't do a good job, you get punished.

So they rely on reward/punishment to promote productivity.

Very few of these still exist

Market Economy

Most people act out of self-interest here, called a free enterprise. Since resources are private, sometimes called private enterprise.

What is being produced linked to consumer demand. Businesses will get rid of stuff that isn't wanted (sales etc.)

Consumers want low prices... Producers want to maximize profit so they use least costly materials with most efficient methods.

If your business is inefficient...

Distribution in Market Economy

People with high incomes are entitled to more things than people with low income.

Basic Elements of Market Economy

• Private property
• Freedom of enterprise 
• Profit maximization and competition
• Government provides laws and order to help development

Pure Market Economies Don't Really Exist Anymore

Where Does Canada Stand?

Two important reasons why 'pure' economic systems don't exist.

None of them are perfect

Given current knowledge politicians try

Canada is a great example of this

Although we use elements of traditional and command economies, it most clearly borrows from market economy.

ctv vs cbc

Canada like a lot of societies

Crown land

CTV

Crown land is a feature of command economies, but also allows private ownership of land which is a feature of market economies.

Although there's a lot of free enterprise

Bartering exists too!

Hidden economy

Figure 2.7 on pg 33 is nice

Politics and economics

Democracy

Dictatorship

Communism

Communism

• Private property and free enterprise abolished
• People produce according to their ability and consume what they need
• Strong central govt. with complete authority to plan for max growth
• For the greater good, unions are denied
• Extreme left (force usually requried)

Socialism

socialism

• They don't ban opposing parties
• Try to allow fair and equal distribution of goods
• Democratic decision making
• Free enterprise is inefficient, wasteful, and prone to conflict
• Moderate left

Socialization

• Co-operation replaces capitalistic ideals of self interest
• Not as good as it sounds though... Productivity dropped in nations 
• Sort of happens in Scandinavian countries, focused on private enterprise
• However, the government balances policies to address collective needs

Capitalism

capitalism

• Private ownership of industry operating under free-market is essential
• Producers make things for profit
• Business can maximize profit by making stuff people want to buy
• Opportunity for profit and threat of loss is the balancing act here
• Moderate right

Capitalism

• US, New Zealand, Hong Kong, Singapore
• Canada - primarily capitalist interest with blended social characteristics

Fascism

fascism

• Use force to control people
• People are free to own business... As long as they do what govt. says
• Restrictions on individual freedom
• Extreme right 

Setting economic goals

Complementary goals

Conflicting goals

Stable government

Reduce public debt

Economic growth

Theoretically, our productions possibilities curve is being pushed past its frontier.

Increased productivity/efficiency

Equitable distribution of income

People in ontario make more money

Price stability

Inflation and deflation are bad

Full employment

Economic freedom

economic freedom

• People should be able to find and take another job
• Consumer sovereignty - people get to pick what's being produced