Warm-up

1. If you could buy one thing in the entire world – no matter cost – what would it be?

Chapter 2Section 3

Centrally Planned Economies

• In a centrally planned economy, the central ___________, rather than individual producers and consumers in markets, answers the key ___________ questions of production and consumption.

• A central ____________ makes all the decisions about _____ items to produce, _____ to produce them, and ____ gets them.

• It is up to the bureaucrats to ensure that each firm has enough raw __________ and ________ to meet its production goal.

governmentgovernment

economiceconomic

bureaucracybureaucracy

whatwhat howhowwhowho

materialsmaterials workersworkers

Government Control

• The government owns both_______________, and in a sense ________ too.

• Farmers are told _________ to plant, _____ to plant and where to send their crop. The free market forces of __________ and competition are ________ from the system.

• The lack of _________ voice in production and _________ shows that under centrally planned economies, consumers do not have_________.

land and capitalland and capital

laborlabor

wherewhere howhow

self-interestself-interest

absentabsent

consumerconsumerdistributiondistribution

sovereigntysovereignty

Socialism

• Socialism is a social ____ political philosophy based on the belief that democratic means should be used to ___________________ throughout a society. Real equality can _____ exist when political equality is coupled with ________ equality.

• Socialist countries may be ___________ and usually the government owns major _________.

AND

distribute wealth evenlydistribute wealth evenly

onlyonly

economiceconomic

democraciesdemocracies

industriesindustries

Karl Marx

• A social philosopher who was critical of ________ employers for their emphasis on ______ and developed a plan for a ________ society which he called communism.

capitalistcapitalist

classlessclassless

profitprofit

Communism

• Communism is a centrally planned economy with ____ economic and political ______ resting in the hands of the government.

• Unlike socialists, communists governments are___________.

• Authoritarian governments require strict _________ from their citizens and do not allow individual ________ of judgment and action.

ALLpowerpower

authoritarianauthoritarian

obedienceobediencefreedomfreedom

The soviet union

• In the early 1900’s the USSR was most concerned with building _______ power and prestige. They allocated the best land, labor and capital to the_____________, space program and production of____________. They created large state-owned farms. Aggie workers were ___________ employment and income…with ____ incentives, individuals had few reasons to produce _____ or _______ crops, thus before long the Soviets could not feed all of its people.

• The state also owned heavy industry. Again, once production ______ was met, there was no __________ to produce more quality goods. In fact, it was illegal to exhibit entrepreneurial behavior.

nationalnationalarmed forcesarmed forces

capital goodscapital goods

guaranteedguaranteed nono

moremore betterbetter

quotaquota incentiveincentive

• Consumer goods were ______ and poor quality. For example, a manufacturer assigned to produce a certain number of suits could loosely stitch the buttons and forget the buttonholes and mismatch coats and trousers…but still the state store had to ______ delivery of the suits and consumers had_____________.

scarcescarce

acceptaccept

no alternativesno alternatives

Consumers would have to wait ______ in line for goods. Items such as housing and food

was_________, yet rarely available

hourshours

affordableaffordable

• The breakup of the soviet union in 1991 was partly due to the collapse of its centrally planned_________. Mikhail Gorbachev told the Soviet people that their economy was in trouble and must ________ to help productivity. The economy grew worse, inflation soared, goods were scarce leading to political________.

economyeconomy

modernizemodernize

unrestunrest

Which of the following economic goals are difficult to achieve in a

centrally planned economy?

1. Economic efficiency

2. Economic security and predictability

3. Economic equity

4. Economic growth and innovation

Ch 2.4 Modern Economies

How much would you be willing to pay if How much would you be willing to pay if you had to buy a ticket to use roads and you had to buy a ticket to use roads and highways? Or to have your house saved highways? Or to have your house saved from a fire? Or to send someone into outer from a fire? Or to send someone into outer space? Or for this economics class (be space? Or for this economics class (be nicenice or to borrow a book from the or to borrow a book from the library? Or to play on the jungle gym at the library? Or to play on the jungle gym at the park? Or to have an officer help you when park? Or to have an officer help you when your wallet is stolen?your wallet is stolen?

• Today most economies are _______ economic systems.

• No ___ economic system can adequately ______ everyone’s wants and______.

mixedmixed

1

satisfysatisfy needsneeds

The Limits of Laissez Faire

• Adam Smith believed that left to its own devices, the __________ system would provide the greatest benefit for _________ and raise the standard of living.

free marketfree market

consumersconsumers

• They followed__________, the doctrine that _________ generally should not intervene in the marketplace. However, most still believed the need for a certain _________ degree of government intervention in the economy

laissez fairelaissez faire

governmentgovernment

limitedlimited

• Some needs that markets meet fall to governments so that _____ members of society can participate. Ex. Education

ALLALL

• Governments create laws ________ property rights and enforcing contracts. Without laws insisting on___________, many people fear some firms would dominate others.

protectingprotecting

competitioncompetition

• This all depends on the opportunity cost of pursuing each goal. Are you willing to pay taxes to fund the army? To give money to people without jobs? To give all people an education?

Circular Flow Model: Mixed Eco

Circular Flow Model

• The structure of most modern economies include__________.

• The government pays ___ million employees 9.7 ______ dollars a year for their labor.

• Governments also provide certain _____ and services. Ex. 4 million miles of roads

• Governments also _______ money. Ex. Social Security.

governmentgovernment

2.82.8

billionbillion

goodsgoods

transfertransfer

Sweden• Sweden’s mixed economy has mixed benefits.

The government redistributes more than _____ of Sweden’s wealth through ______ benefit programs. When a child is born, his or her parents are entitled to ____ days of parental leave with __ of their salary paid by the government. Swedes _____ pay more than ____ a year for prescriptions. Your braces are _____, you get ___ days vacation. Your __________ is that it is the second-highest tax burden of any industrialized country. ____ of thedir inome is taxed versus the U.S. _____ would you be willing to pay for these benefits for the 24% difference?

halfhalfsocialsocial

450450¾¾

nevernever$170$170freefree 3030trade-offtrade-off

56%56%32%...32%...

Continuum of Mixed Economies

• Centrally Planned

North Korea

Free Market

» Hong Kong

France

United States

China

Canada

Cuba

Music Madness

• Suppose you are opening a new music store in your town. What resources would you need? (list 3) What would you offer? (3 consumer goods) How would the government affect your business?(3)

• North Korea v. Hong KongEconomic Planners

North Korea and Hong Kong each have 5 idle factories that must be brought up to full production within a year. Answer the following and how you arrived at your answers.

• What will we produce?• To whom will we sell our products?• How will we find workers for the factories?• How much will we charge for our products?