Title: Types of Economic Systems
1Types of Economic Systems
2Types of Systems
- The question that each economy faces is whether
they want prices, quantities, distribution of
goods and services, and distribution of income to
be determined by the private sector or the public
sector. - Private sector made up of consumers and
businesses. - Public sector is the government. There are
different levels of government local, state and
federal. - Some services are produced by both private and
public agencies such as education, trash
collection, and security. - The groups in the economy are consumers,
businesses, and government.
3Entities
Players Goal Examples
Consumers Maximize personal utility Some people maximize their utility (happiness) by purchasing material goods. Some people maximize their utility by giving away their time and money to charity/ missions.
Businesses Maximize long-run profit http//money.cnn.com/magazines/fortune/fortune500/2011/performers/companies/profits/ Businesses maximize profit to make owners happy!
Government Maximize social welfare http//www.edd.cahwnet.gov/Unemployment/Federal_Unemployment_InsuranceExtensions.htm Governments goal is to make the masses happy, not just one group of people or businesses.
4Five Questions each economy must address
- The answers to these questions will determine the
type of economic system the economy will pursue.
5Government Questions 1
- How much should the economy produce?
- It depends on the resources it has available
- The resources are land, labor, capital and
entrepreneurial spirit. The goal is to use each
of the resources efficiently. -
62. What should be produced?
- The Theory of Comparative Advantage
- A society should produce goods and services that
complement its competitive edge. - Corn is not grown in Alaska, but fisheries are
prospering.
7 US Farmland
1997, 2002 and 2007 Census of Agriculture 1997, 2002 and 2007 Census of Agriculture 1997, 2002 and 2007 Census of Agriculture 1997, 2002 and 2007 Census of Agriculture
1997 2002 2007
Approximate total land area (acres) 2,262,462,020 2,263,960,501 2,260,994,361
Total farmland (acres) 954,752,502 938,279,056 922,095,840
Percent of total land area 42.2 41.4 40.8
Cropland (acres) 445,324,765 434,164,946 406,424,909
Percent of total farmland 46.6 46.3 44.1
Percent irrigated 11.5 11.6 12.7
-
- On the arable land, which is only 11 of Japan's
total land area, the population density is among
the highest in the world. - 145,833 sq mi in Japan 15,000 square miles of
farmable land - 9,600,000 square acres
- Census of Agriculture Contact NASS Customer
Service, 1-800-727-9540.
83. How are the goods and services
production
- By the most efficient companies.
- Sometimes by the government.
- In a capitalistic system the best companies
survive, the weaker companies go out of business.
9Who receives the output?Income Distribution by
Quintile
YEAR BOT 20 MID 20 TOP 20 TOP 5
2010 116,011 3.9 8.8 13.9 20.2 53.5 23.5
2005 114,384 3.4 8.6 14.6 23 50.4 22.2
2000 108,209 3.6 8.9 14.8 23 49.8 22.1
1990 94,312 3.8 9.6 15.9 24 46.6 18.5
1970 64,778 4.1 10.8 17.4 24.5 43.3 16.6
10Percent of Taxes Paid by Quintile
11The Distribution of Income is not equal in the
United States.
- In the US the top 20 percent of wages earners
make 53 percent of the income. - The bottom 20 percent of the wage earners make
3.9 percent of the money. - In a Communist Society, theoretically every one
would make the same amount. Their would be no
rich or poor. Yet, there would also be no
incentive to work hard because everyone makes the
same amount.
12Can the system adapt to change?
Country Agriculture Industry Service
United States 0.9 20.4 78.6
South Korea 3.3 40.7 56
Indonesia 13.1 46 41
13These were so cool!
14State of the Art
15(No Transcript)
16Change does occur in the US without government
intervention.
- Businesses change to earn profit. Cell phones
have gotten smaller, batteries last longer,
service has improved. Why? Because companies want
to earn profit, and these qualities attract
consumers! - Music is now played on an MP3 or I-pod.
- Why? Because companies want to earn profit and
these smaller units attract consumers.
17Types of Economies
- Command
- governments determines prices and quantities
produced - Capitalistic
- free market interaction between buyers and sells
determines prices and quantities produced - Mixed
- a mix where in some markets the government is a
buyer, regulator, or producer.
- Even with a free market capitalist system there
are times when the system does not operate in a
manner that best suits the overall population.
These occurrences are known as free market
breakdowns. Some of these free market breakdowns
are on the Free Market Breakdown page on the
website.
18The U.S. Economy is mixed.
- Some goods and services are produced by private
companies. - Some goods and services are produced by the
government.
- The trend in the US is for more government. There
are pros and cons of more government. The
biggest cons are incentive to work and large
deficits. The pros are stability and equality
among citizens.
19How can the type of economic system be
determined?
Government percent of overall spending
- http//anepigone.blogspot.com/2008/03/government-s
pending-as-percentage-of.html - http//www.usgovernmentspending.com
- http//www.heritage.org/index/Ranking.aspx
20Why has the government sector grown so much?