Economics.

L3

Economic Systems and Macroeconomics

We all have wants: food, smartphones, good education, 10 000$ Apple Watch.
But we can't always get what we want. We don't have an infinite amount of
resources(raw materials, workers, time). We have to make choices.

We, as a social order, have to figure out three things:

Answer these 3 questions and you get an economic system!

(History and evolution of economic thought in next lessons. This lesson about
the world today)

Market Economy VS Planned Economy

It all comes down to who owns and controls the factors of production.Factors of
production?* Karl Marx defined them as land, labour and capital. He even wrote
a book about it - Das Kapital. In a planned economy the government controls the
factors of production.(sounds like communism? Well, it's not. Look at the
picture). In a market economy individuals own the factors of production.
True communism is a classless society. Social order wherewhere everyone owns
the factors of production, and output is distributed equally. (kinda China, Cuba
and former Soviet Union ? Not really. In practice, no country has ever been truly
communist. There's a lot of countries that are socialist. Socialism has both
private property and some public ownership. Goal - meet specific collective
objectives and provide free and easy access to things like Education and
Healthcare )

Command/Planned Economy - controlled by the government (North Korea)

Free Market/Capitalists Economy - individuals own the factors of

production(New Zealand)

Invisible Hand
We often take markets for granted. Let's look at the alternative. Assume, that
government agency was in charge of deciding exactly which types of cars and
cell phones and shoes to make.

Do you think they could quickly respond to changes in tastes and preferences?
If there was only one government monopoly producing cars, do you think they'd
be produced e!ciently?

So, the invisible hand of the free market is the idea that individuals and
businesses meet society's needs when they seek their own self-interest.

Competetive markets with profit-seeking businesses will have an incentive to

produce high-quality products as e!ciently as possible.

Looks like the free market is perfect and we don't even need a government?
That's not quite right. There's a bunch of things the government must
do(because free markets won't):

Maintain the rule of law(laws, police, contracts, courts)

Public goods and services(roads, bridges, education, defense)
Production regulations(standards)

Most modern economies are actually mixed economies.

It's important to keep in mind that economies can change. Over time, Denmark
and Canada have adopted more elements of a planned economy, like universal
healthcare. China, on the other hand, has added more free market elements to
its economy and now has less government ownership and control of production.
Communist China actually has a socialist market economy.

Which type of economy is better and how much should the government get
involved?

It's hard to find support for command economies outside North Korea and maybe
some nostalgic Cubans and Russains . Those who support socialism would point
out Denmark's high standards of living and low income inequality. But free
market enthusiasts might point out China's massive economic growth and
growing middle class after backing away from central planning .

Ultimately, the optimal amount of government involvement depends on your

personal values.
How to deal with poverty? Shoul the government be involved? Should society
help? Well, economists aren't good at answering these types of questions. They
don't operate in the realm of feelings.

There are no solutions, only trade-o!s.

Thomas Sowell, economist

Would be great if we could end poverty or provide healthcare for everyone. But
we're gonna have to give something up in orfer to do it.

There's always an opportunity cost and deciding if it's worth it - it's up to you
and your elected o!cials.

Questions for the next lesson

1. Which 3 things can help to define an economic system?
2. Who is Karl Marx?
3. What is market economy?
4. What is planned economy?
5. What is the true communism?
6. What is public ownership and private property?
7. What is the di"erence between economy and economics?
8. What is the invisible hand?
9. What is a mixed economy?

Vocabulary
Social order
Abolition
Former
Healthcare
To meet collective objectives
Take smth for granted
To back away
Ultimately