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Types of Economic Systems

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Title: Types of economic systems Author: Louis Pantuosco Last modified by: Lou Created Date: 8/26/2009 6:32:30 PM Document presentation format: On-screen Show (4:3) – PowerPoint PPT presentation

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Title: 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
An Economic System designed around consumers
and businesses.
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. http//www.youtube.com/watch?v90HhZ-pyC2Y
Businesses Maximize long-run profit Businesses maximize profit to make owners happy! http//news.exxonmobil.com/press-release/exxon-mobil-corporation-announces-estimated-second-quarter-2013-results
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
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.

5
Principles of Capitalism
  • Capitalism addresses the needs of consumers and
    businesses.
  • Capitalism attempts to solve problems without
    government intervention.
  • Capitalism inspires free enterprise.
  • Capitalism promotes private property rights.

6
Five Questions each economy must address
  • How a country answers these questions reveals the
    type of economic system that will prevail.
  • A capitalistic country looks to the private
    sector to address these questions.

7
Question 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.

8
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
http//news.exxonmobil.com/press-release/exxon-mob
il-corporation-announces-estimated-second-quarter-
2013-results
  •              
  • 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.

9
2. What should be produced?
10
3. How are the goods and services
produced?
  • By the most efficient companies.
  • Top Ten Most Profitable Companies
  • Sometimes by the government.
  • In a capitalistic system the best companies
    survive, the weaker companies go out of business.
  • 1 Royal Dutch Shell oil 2 Wal-Mart Stores
  • 3 Exxon Mobil oil 4 Sinopec Group oil
  • 5 China National Petroleum oil 6 BP oil
  • 7 State Grid oil 8 Toyota Motor
  • 9 Volkswagen 10 Total oil

11
4. 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
12
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.

13
Percent of Taxes Paid by Quintile
14
5. 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
15
Employment by Sector
Occupations 1900 2010
number percent number percent
Agriculture 10.4 35.7 4.3 2.9
Manufacturing 7.1 24.4 11.5 7.8
Trade and Transportation 4.8 16.5 24.9 16.8
Services 6.8 23.4 107.3 72.5
Total 29.1 148
In millions
16
Styles Change!
17
State of the Art
18
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19
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 a Smart Phone, MP3 or
    I-Touch.
  • Why? Because companies want to earn profit and
    these smaller units attract consumers.

20
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.

21
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

22
Property Rights are important in Capitalism
  • Tragedy of the Commons
  • Ownership is necessary, otherwise no one will
    value the property.
  • The Family Pond passed down to the next
    generation.

23
Why has the government sector grown so much?
  • Free Market Breakdowns?
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