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Economic Systems

What is a free-market, command economy, and mixed economy? What are the3 advantages and disadvantages to them? Examples?
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Brandon Reber

on 13 December 2012

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Transcript of Economic Systems

Free-market Command economy Economic systems:
What is a free-market, command economy, and mixed economy? By B-REBE!! How the system works: Private companies come up with ideas
for a product to sell to consumers. Manufacturing/ production of the product
begins. In free-markets this is done as
cheaply as possible. Consumers purchase the product allowing
producers to make a profit. The economy is run solely on the concept
of supply and demand.
NO GOVERNMENT INTERVENTION Free-market supporters say get
your hands off the economy Barack! What are some of the advantages of a free market? Ability to have economic freedom and self-interest in the economy Potential to individually obtain
the most amount of capital Equality of Opportunity Increased motive to try hard in the economy. Less government interference in an individual's life What is an example of a free-market economy? Communism Cat explains the disadvantages of free-markets Free markets are evil because they:
-Allow entrepreneurs to take advantage of workers
-Life built on consumerism; preoccupation on goods rather than people!
-Great degree of income disparity
-Potential for wealthy to become influential in society
-Homogenization of cultures via transnational corporations. What is the message of the following cartoon regarding free markets: The cartoonist depicts U.S president Barack Obama as he explains to a news reporter that he is for government intervention in the American economy. The cartoonist shows how the "elephant" in the room, America's tradition of a free-market system, is brought up with Obama's willingness to intervene in the economy. The Republican symbol is that of an elephant; the cartoonist suggests that not only is Obama's values against capitalism, but it is also in contradiction with the Republican party's values of a economic system with limited government involvement. This is why the elephant is beaten up; the ideology the elephant represents is being rejected by Obama. Allows entrepreneurs to take advantage of workers Capitalists will do anything to maximize profits even if this means poor working conditions for workers and child laborers (improving working conditions costs money!) Free-markets are
a cat-astrophe! Life built on consumerism; preoccupation on material goods Command economies
are truly purr-fect! Great degree of income disparity The poor are poorer in free-market systems. This is because there is little equalization of income such as taxation in mixed economies or nationalization of funds like in a command economy. I'm not kitten around;
free-markets do truly suck! Homogenization of cultures When transnational corporations such as Disney utilize free markets to expand their companies, they risk assimilating the current cultures there. This wouldn't happen as extensively in a mixed economy due to government regulations, and command economies don't even allow private corporations to exist in their societies. Dog-gone free-markets.
It's ironic because I'm a
cat. Wealthy can become influential Such as Oprah lobbying for Obama in the 2008 and 2012 elections. The rich can use their voice to influence societies in ways such as this. I'm all out of puns... let
me paws and think of
another one... 1920's America! How is this a free-market economy? During the 1920's, the economy of the United States was built solely on the concept of supply and demand. There was limited government involvement, and individuals could express their economic freedom, self-interest and compete with everything they had. Although it may not have been a PURE free-market because of slightly better working conditions than in the industrial revolution, Adam Smith's "invisible hand" was practically in full effect; that is, until F.D.R's New Deal shifted America's economy to more of a mixed one. What does the following graph have to do with America's free-market economy in the 1920's? The free-market economy of the Roaring Twenties substantially increased the wealth of the United States; however, there was a great amount of income disparity during this time. The chart shows the increase in the demand (consumerism) in the states leading up to 1929. In October of 1929, the free-market of the United States virtually collapsed as signified by the downward trend of the graph. Eventually, with the government intervention initiated by Roosevelt, the economy of the U.S (now more of a mixed economy) picked up. This is also shown in the graph with increased demand from consumers in the mid-1930's. Under a free-market system, you can express your self-interest and economic freedom to obtain massive amounts of capital that you couldn't obtain in a command or even a mixed economy. In terms of gaining the most capital for yourself, free-markets are by far the best option. This is a benefit for individualists. Being relieved from the shackles of the collective means you can express yourself economically how you want to. You can pursue your own interests in the economy; you can do what YOU want instead of what the government tells you to do. How the system works: A centrally planned state (authoritarian regime) makes decisions about what to produce and how to produce it; essentially they make all economic decisions. Manufacturing/ production of goods
begins. All individuals are assigned roles in the manufacturing process by the government. Products are then produced, and consumers can then buy them. The government continues to command all economic activities. Unlike a free-market, private enterprises are non-existent in a command economy. Way to command that economy Stalin! What are the advantages
and disadvantages? Kim Kardashian Friedrich Engels Lemme start by saying that command
economies infringe on my freedoms as
an individual! How dare the government
take away my freedom to do what I want with
my life! I'm not a pawn for them to play; I'm
an individual who should should be free to live my life however I see fit! That may be true Kim, but command
economies can also be very beneficial.
Look at the massive industrialization Stalin
made in the Soviet Union; that would've
been practically impossible if the
economy wasn't as organized as it was.
Free markets lack this organization! Yeah, but that happened at the
expense of the citizens. They were all
exhausted after the work Stalin put
them through! Command economies,
much like free-markets, result in poor
working conditions that exhaust the
citizens. In command economies, working conditions SHOULD be very good! If a command economy is put into practice perfectly, it should mean that working conditions are good for everyone. Okay, but how do you explain the fact that command economies often fail to
produce the perfect amount of goods?
Oftentimes, there is a surplus or a
shortage; the right balance is often
quite far off. That's only true some of the time. As
well, the benefits outweigh the bad.
In command economies, basic education
is usually free, and there often times is a
high literacy rate. Yeah, but what if I want to sell my own
things? What if I as an individual want
to have economic freedom and have the
ability to make it rich? A command
economy limits my ability to produce
and sell things! I want to be an
entrepreneur!! That's one of the problems of free-
markets; some are rich and some are
poor. By limiting your ability to produce
individually, we are making sure that
there is limited income disparity and
everyone benefits out of society. Don't you think its dangerous though
to have the entire economy in the
hands of a select group of people?
What if they make a mistake?
The entire economy can potentially
fail! I strongly dislike rich folk like you.
Command economies ensure that rich
people like you can't be as influential
for doing practically nothing. How is it
you rose to fame anyhow? I dislike you. Mixed economies
related to
POTATO A potato can be made "soft" by mashing it. Economic recessions can be "softened" by government intervention via fiscal and monetary policies. During recessions, governments should spend money, reduce interest rates/ taxes, and increase the amount of money produced. Generally, mixed economies can soften economic recessions using the previous method if Keyne's economic theory of boom-and-bust cycles is indeed correct. This "softening" wouldn't happen in a free-market. Potatoes must be drained after cooking them in water. This can be done by pouring them into a strainer; the strainer acts as a net to catch the potatoes making sure they don't fall into oblivion. Mixed economies also provide a safety net to the less fortunate in society by providing social programs such as welfare for people when they are in times of need. Potatoes come in all kinds of shapes and sizes. Suffice to say, there are many different choices of potatoes out there. Mixed economies also are about providing choices. Free-markets can establish monopolies (by one company eliminating the competition), and command economies restrict the only "company" being the government itself. Mixed economies ensure that there is more choice for consumers. When people peel potatoes, they do not simply throw the peelings onto the floor. The people put them into a pile as simply throwing them onto the floor means someone could slip on them and get hurt. Mixed economies also try to make conditions better and safer for workers. It still allows entrepreneurs to make money by hiring workers, but mixed economies also make sure worker's rights are respected; this is what Theodore Roosevelt called a "square deal". I love potatoes. Rich and poor people can give their loved ones the gift of potatoes this Christmas as anyone can buy them. When you buy potatoes, GST, a tax, is collected. It is taxes like these that mixed economies utilize to attempt to reduce the amount of income disparity in their societies. Although a gap will still exist between the rich and the poor, the gap is significantly smaller than in a free-market economy. Mixed economies
related to
BEETS When I was a kid, I went to family dinners on Sunday. My mom would always put lots of beets on my plate even though I wanted potatoes. "Beets are good for you," she said,"you'll like them". She lied. Mixed economies are analogous regarding taxes. You have to finish off paying your taxes (beets) before you can have the good stuff (money for yourself/ potatoes). In free-market economies, you can have all of the money instead of having to pay taxes. Adding beets to any meal makes it taste a lot less pleasant. This is fact. Similarly, mixed economies add taxes that reduce an individual's potential to become very, very rich. Unlike free-market economies where an individual can create a corporation that makes them an unrestricted amount of cash, mixed economies put limits (via taxes) on the amount of money an individual can keep for himself. Essentially, you can't get as rich in a mixed economy. When you know that you're having beets for supper, there's nothing you can think about all day. A mixed economy is similar in government interference in an individual's life. Hayek believed that the more involved a government got into the economy, the more the government needed to get involved in the personal lives of citizens; the interference by the government is a hindrance to an individual, and therefore, it is a problem with mixed economies. A meal can cause an upset stomach when you eat too much; a meal with beets where you eat too much is even worse. Government interference in the economy is similar. Through poor control by the government over the money supply, inflation can occur. Combine inflation with a recession, and stagflation can occur. A free-market economy on the other hand rarely has inflation or stagflation at all. This shows that government interference in the economy can certainly have problems. If I didn't have parents, I would never eat beets as it simply isn't something I want to eat. Mixed economies can also present challenges to entrepreneurs via the policies and regulation of the economy. For example, companies involved in the lumber industry are challenged by Canada's environmental policies. You cannot simply clear-cut an area even though it is profitable; you must also plant trees back. This costs money and means maximum profits can't be made; something that is not good for business owners. What does the following political cartoon say about mixed economies? The cartoon suggests that perhaps the reason mixed economies are popular is because of the promise of jobs and prosperity from the government. The cartoon depicts President Obama, during the campaign trail, promising jobs for the American people. The cartoonist compares Obama to a savvy salesperson; he will do anything it takes in order to achieve office. As well, this suggests that perhaps, much like most of the products salespeople sell, will fail to satisfy the people. The cartoonist suggests that perhaps mixed economies are more popular with people because of the promise of jobs; an individual running for office who believes in the free-market can't promise jobs because his administration doesn't believe in interfering with the economy. What is an example of a command economy? The Soviet Union! How is this a command economy? The U.S.S.R was a totalitarian regime that directed all aspects of citizens' lives. Among them was the economy. All aspects of the economy was controlled by the central state (Stalin) including what to produce, how to produce it, and how fast to produce it. There was no economic freedom and self-interest in the economy at this time; you performed your dictated role without question. All "companies" and products were owned by "everyone" even though it was really Stalin making all of the
decisions. What does the following cartoon have to do with command economies? The cartoon suggests that command economies are typically not viable in the long-term. The cleared podiums show a pattern that communist (command economy) countries will typically eliminate their leaders and shift to a different economic system. The cartoon suggests that the last three true command economies in the world, China, North Korea, and Cuba, will eventually shift to a different system in the near future. What is an example of a Mixed economy? Canada! How is this a mixed economy? Canada is a mixed economy because there is a mixture between free-market and command economy principles. Free-market principles Canada embraces include private ownership as well as a large degree of economic freedom and self-interest. Command economy principles Canada embraces include government regulation, some crown corporations, social programs, and some taxation. Since it embraces principles from both command and free-market economies, Canada's economy
is "mixed". What does the following cartoon have to do with mixed economies? This cartoon presents an interesting perspective on the social safety net a mixed economy provides. Whereas typically one thinks of the safety net as helping individuals in times of need, the cartoonist believes otherwise. The cartoonist believes that the social safety net is actually helping investment firms and banks by placing a burden on taxpayers. The bigger they are the harder they fall; the larger the bank/ investment firm, the more strenuous burden will be placed on taxpayers. This is all due to the social safety net that is supposed to provide for citizens in times of need rather than burden them in it. How the system works: Private companies mostly come up with what to produce and sell, but the government sets regulations and taxes on the companies Consumers purchase products fueling the
supply-and-demand concept. Taxes are paid to the government by consumers and businesses.... Based on the extent of taxation (and ultimately government intervention) citizens are provided with social programs such as healthcare and employment insurance. Although the economy is predominately run on private businesses and the concept of supply and demand, government involvement with taxes and crown corporations help to provide a social safety net to citizens. Mixed Economy Hayek believed that the more the government got involved in the economy, the more pervasive it would become in the lives of citizens. The more involvement in citizens' lives, the more totalitarian the government becomes. Totalitarianism rejects all liberties for a citizen; the freedom we enjoy in Canada today would be removed if we had a totalitarian regime. In this sense, free markets protect our liberty. In free-markets, the classical liberal principle of equality of opportunity is embraced. Everyone has the POTENTIAL to do well in the economy, yet not everyone will succeed. Based on how hard you compete against others, the better you will do. This is in contrast to the nature of command economies as where you are born, such as in a labor camp in North Korea, is where you'll likely stay for the rest of your life. The individualist nature of free-market societies subscribes to Adam Smith's theory of the "invisible hand". This theory states that the economy will ultimately prosper because the competition between individuals' self-interest in the economy will provide better products at cheaper prices. Working for yourself rather than the common good is inherently selfish, yet it does indeed provide incentive to work hard. Supporters of command economies would argue that the preoccupation with buying goods corrupts societies. How free-markets do this is by placing the focus on working to purchase goods rather than spending time with family, friends, etc. Who is an example of a command economy leader? Fidel Castro, the first secretary of the Communist Party of Cuba, was a significant command economy leader. Under his administration, the economy of Cuba became nationalized. This means that it was under control of a central state (command economy). What does the cartoon think about mixed economies? The cartoon suggests that mixed economies are popular with voters in a democratic system due to the promise of jobs. Free market supporters, or those running for office who support a free-market, can't promise jobs due to their disbelief in government involvement in the economy. The cartoonist contrasts Obama's promotion of jobs to that of a savvy salesperson; oftentimes, the "goods" advertised aren't nearly as useful as promised. This presents the cartoonist's perspective that presidential candidates have empty promises regarding offering jobs. The cartoonist feels that the promise of making jobs is good for Obama to get elected, but it may be unrealistic. -This economy had little to no regulation by the government!
-No taxes on businesses!
-No social safety nets!
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