Types of Economic Systems

1
Types of Economic Systems
2
Types 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.

3
Entities
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.
4
Five Questions each economy must address

• The answers to these questions will determine the
  type of economic system the economy will pursue.

5
Government 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.

6
2. 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.

8
3. 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.

9
Who 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
10
Percent of Taxes Paid by Quintile
11
The 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.

12
Can 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
13
These were so cool!
14
State of the Art
15
(No Transcript)
16
Change 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.

17
Types 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.

18
The 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.

19
How 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

20
Why has the government sector grown so much?

• Free Market Breakdowns