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187 views

Feb 10th

Uploaded by

api-247721422
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© Attribution Non-Commercial (BY-NC)
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Economics CIA4U February 10th 2014

The Three Fundamental Questions Types of Economies

Economic Systems and Production Questions


Economic systems have been established to answer
the three fundamental questions of production.

What to Produce?
What goods and services should our society produce,
and in what quantities?

What is worth producing and what is not? What are we giving up in order to produce these goods
and services.

How to Produce?
By whom, with what resources, and in what way should
goods be produced?

How can our limited resources be used most


efficiently?

Should products be made in small, privately owned


factories or in large, state-owned corporations?

How much automation should be used? How much


manual labour?

For Whom to Produce?


How will total output be shared among the different
members of society?

Who will get which goods and services? Will products


be shared equally?

On what basis should decisions concerning distribution


be made?

Economic Systems
Every economic system attempts to answer these
questions effectively.

How these questions are answered will help to identify


the type of economic system that is in place.

An economic system is a set of laws, institutions,


and common practices that help a nation determine how to use its scarce resources to satisfy as many of its peoples needs and wants as possible.

The Traditional Economy


The practices of the past determine the answers to the
three production questions.

Skills are past from generation to generation, usually


within the same family.

The quantity of output does not change greatly from


year to year.

People engage in little long-term planning and focus


primarily on surviving the challenges of each day.

Examples

Skills are past down


http://www.bbc.co.uk/news/science-environment12241053

Command Economy
All production decisions are made by a small group of
political leaders who have the power to enforce their decisions throughout the entire economy.

Productive resources are owned by the state and efficiently


allocated by the central authority on behalf of the state.

Individual people serve the state and, in turn, the state


authorities draw up plans to meet individual needs.

Rely on a system of reward and punishment to promote


increased productivity.

Advantages
-Supporters of command economies argue that it enables the government to overcome market failure, inequality and create a society that maximizes social welfare rather than maximizes profit. -Command economies can prevent mass unemployment, often a feature of capitalist economies. - Command economies could produce goods which benefit society and ensure everyone has access to basic necessities.

Disadvantages
-Government agencies usually have poor information about what to produce. Centralization means that decisions are taken by people who may have no access to what is actually happening. Command economies, like the Soviet Union often produced goods that werent used. -Unable to respond to consumer preferences. -Threat to democracy and liberty. A command economy creates a very powerful government which limits individuals rights to pursue economic objectives. This invariably creates a climate where governments can extend their control into other areas of peoples lives. - No reward for initiative.

Market Economies
Economic activity is coordinated by many individuals
who make independent decisions in a free marketplace.

Also called private enterprise.

Actions of individual buyers and sellers in the


marketplace answer the three production questions.

Quest for profit plays a key role.

Transition from Command to Market Economies


From the 1980s, many command economies, such as the Soviet Union began to make the transition to a mixed economy. This involved a process of privatisation and price deregulation. A mixed economy enables the benefits of both free market and some selected government intervention. China has also made the transition from a command economy to a mixed economy though politically the country still remains communist.

Mixed Market Economy


No single type of economic system has achieved
perfection.

Given the free flow of ideas and knowledge in the


Information Age, political leaders and economic decisions makers will attempt to integrate the best elements of each type of economy into their own system.

Canada is a prime example of a mixed economy.

Economic Systems
http://www.youtube.com/watch?v=d8ivuSUfTg4

Some keywords
Democracy: a political system characterized by a freely
elected government that represents, for a set term of office, the majority of citizens.

Dictatorship: a political system in which a single person


or party exercises absolute authority over an entire nation.

Right vs. Left


Left wing beliefs are usually progressive in nature, they look to the future, aim to support those who cannot support themselves, are idealist and believe in equality. People who are left wing believe in taxation to redistribute opportunity and wealth - things like a national health service, and job seekers allowance are fundamentally left wing ideas. They believe in equality over the freedom to fail.

Right wing beliefs value tradition, they are about equity, survival of the fittest, and they believe in economic freedom. They typically believe that business shouldnt be regulated, and that we should all look after ourselves. Right wing people tend believe they shouldnt have to pay for someone elses education or health service. They believe in freedom to succeed over equality.

Communism
A political model based on the theories of Karl Marx,
Friedrich Engels, and Vladimir Ilyich Lenin.

Calls for government or community ownership of all


means of production and wealth.

Private property and free enterprise are abolished.


Individuals produce according to their ability and
consume according to their need.

Seen to be extremely left wing.

Socialism
Also based on public ownership or control of the
principle means of production.

Favour democratic and peaceful methods to achieve


their goals.

Sometimes called social democrats.


Moderately left wing. Fair and equal distributions of resources.

Capitalism
Requires a democratically elected government to
maintain public order and to keep competition free and fair.

Producers are motivated by profit.

Businesses can maximize profit by making products


that consumers are willing and able to buy.

Moderately right wing.

Fascism
Extreme right.

Combines free-market economy with a non-democratic,


or authoritarian, form of government.

Use force as a means of political and social control. Citizens are free to own property and businesses as
long as they comply with all government dictates.

Eco News Checklist


1. A recent news topic (within the last year) discussing a
local or global economic issue.

2. A one page (500-700 words) summary and discussion


of your chosen topic (Talk about both sides of the argument if you can. You may need to use more than one article).

3. A visual aid for your 5-10 minute presentation of your


issue.

4. Printed articles to hand in with your paper.

Eco News
http://www.thestar.com/news/city_hall/2013/12/16/garb
age_privatization_councillor_looks_at_fasttracking_eas t_of_yonge_st.html (Privatization of garbage collection in Toronto)

Mark Breakdown
4 Unit Tests: worth 5% each (20%)

Economist Presentation: worth 5%


Eco-News: worth 15% Independent Tasks (homework): worth 10% 20% - Future tasks to hear about soon! Final Written Exam: 15%

Independent Study Unit: 15% (More details to come)

Independent Task
Read pg. 27-37 and answer questions 1-4 in the check
your understanding section.

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