Verbal Bellringer – Get out your notebook

1. Think of some economic problems with our modern economy, or that you learned about in history class

What usually makes people better off?

• What if illegal?

Economic Questions1. What to produce?

2. How much to produce?

3. How to produce it?

Answers decide what economic system you have

Households? Countries? Schools? Businesses?

Command EconomiesThis is the flag of the Union of Soviet Socialist Republics (USSR)

Why do you think they chose the hammer and sickle as their symbol?

Command Economies

Use the slips to estimate how much of each item you eat in 1 year.

(Think about how much you would need for 1 day, then multiply by 7 (days), then multiply by weeks (4 weeks per month), then by 12 (months per year)

Command Economies

Let’s experiment:Try and predict how much of each item you

should produce to feed the entire classroom for one year

Be careful, this food is perishable and if you produce too much the food will spoil.

Conversely, if you produce too little, people will starve and die.

If your committee is 100% correct, 100% on 1st Quiz

What you just did

• You tried to centrally plan the economy

• What happened to our village?

Command Economies

Based on the ideas of Karl Marx (1818-1883)

German Economist

Lived in England

First Sociologist

Industrial Revolution

Command Economy Philosophy

• Produce needs, not wants• Make needs as close to free as possible• Treat workers better (safe, high wages,

benefits)• No private property• Economic equality• Central planning of production• No new types of business

Benefits of economic system?Problems with economic system

Issues with Mankiw’s assumptions

USSR

• 1917-1991

• Tried experiment with communism– Communism =

command economy with restricted rights.

Free food“Bread Lines”

Lenningrad 1988

Command Economies today• Cuba, show clip

• North Korea• China (sort of, not

really)

• Laos

• Cambodia

• Communist parties around the world

Communist rally in France, 2007

Contrast with Our Mixed Economy

How is a command economy different than our economy?

Why do most command economies fail in the long run (30-80 years)?

A Range of Economic systemsDepends on Economic Rights

Free Market Mixed Command

Hong Kong

Germany

France

Sweden USSRCubaNorth Korea

Dubai

Singapore

World Economic Freedom

1. Who decides what to produce?

2. Who decides how much to produce?

3. Who decides how to produce it?

Market based economy(Capitalism)

1. Private property

2. Profit Motive

3. Competition

4. Consumer sovereignty

5. Limited government

Profit Motive

• People want profits

• Different than command economy

• Adam Smith “invisible hand”

Mixed Economies• Modern countries have the government

help some• For example….

• Schools• Roads• Healthcare• Child care• Space Travel

Capitalism reading Assignment due Tues August 18

Answer on separate sheet of paper

1. Read “Advancing, not Retreating”

2. Why do many see capitalism failing in the long run?

3. Describe 3 ways Capitalism is changing, but not declining.

4. Why is the picture funny?

5. Do you think the author of this article think Capitalism will be alive or dead 50 years from now. Support your answer

Adam Smith• Father of Modern Economics

• Read the comic and write real or just 5 multiple choice questions on his main ideas (A-C only)