[Vnbiz] found this, thought it useful to share, Economic Systems in an Era of Change.course outline

[Craig Stevenson]

http://personal.ashland.edu/~jgarcia/cnot1.htm



*Dr. Javier F. García III; J.D. *





 *Economic Systems in an Era of
Change(c)<http://mail.google.com/mail/?ui=2&view=js&name=js&ids=vsdmtnrembkr#Era>
*





 *Capitalism(c) <file:///C:/Users/CS/Documents/cap.htm>*





 *Socialism(c) <file:///C:/Users/CS/Documents/soc.html>*





 *Introduction to Cultural
Economics(c)<file:///C:/Users/CS/Documents/culturaldimensions.html>
*





 *Culture: Elements and Characteristics(c)
<file:///C:/Users/CS/Documents/culture1.html>*





 *Economic Cultural
Dimensions(c)<file:///C:/Users/CS/Documents/culturaldimensions.html>
*





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valid.*<file:///H:/www/CulturalEcon/INTRODUCTION%20word%20format.doc>





*1. Economic Systems in an Era of Change*
a) Comparative Economic Systems
i) Looks at scarcity, choice, relative prices, absolute prices, efficiency,
utility, and other basic economic questions and concepts

b) *Comparative Economics*
i) Focuses on identifying and analyzing different economic systems and their
impact on their allocation of resources
ii) Focuses on basic issues of economic systems and how these systems are
organized
iii) Combines different economic policies in different national and historic
settings to influence resource allocation or to influence the outcome
observed in each countries setting

c) *What is an Economic System?*
i) Institutional arrangement used to allocate scarce resources in an orderly
fashion to answer the basic economic questions
ii) An economic system exists in every country
iii) A set of mechanisms and institutions for decision making and for the
implementation of decisions concerning production, consumption, income, and
technology within a given sovereignty

d) *Classifying Economic Systems*
i) Ownership of FOP (Private or Public)
ii) Information Mechanism (Market or Planned)
iii) Levels of Decision Making - Who has the authority and responsibility in
the system? (Centralized or Decentralized)
iv) Incentive Arrangement (Moral or Material)
v) Self Interest Criteria (Individualism or Communitarianism)
vi) social classes and culture

*2. Economic Systems in the New World (Globalization)*
Changes in the 1980's and 1990's have brought up three issues:
a) Planned Socialist Systems are undergoing slow changes
i) No longer a clear distinction between capitalism and socialism
ii) The systems are not being replaced, but changed (revolution vs. gradual
reform) - Gradual reform seems to work better - Not changing systems but
improving existing systems
iii) Socialist Systems are changing towards Market Systems

b) Preconditions to Economic Changes Exist
i) Recent System Changes have occurred and are important but Changes beyond
the economic system needs to take place such as:
a) historical development
b) culture
c) resources
d) foreign trade exposure
e) State and class classification
f) Institutions

c) The way we study Comparative Economic Systems may be too narrow. Now we
need to go beyond economic systems to growth and development of economies.
i) Performance of the System
ii) Origin of the System
iii) Under which Systems does the economy performs better?
iv) How Different Economic Systems Influence Resource Allocation

*3. How we Define an Economic System*
Comparative Economics studies economic outcomes in different settings
Economic outcomes are determined by land, labor, capital, entrepreneurial
ability, political forces, cultural forces, geographic forces, institutions
and others... Look at Economic development (growth of the per capita of the
GDP) as well as social, cultural, ownership and form of ownership of
economic resources and historical forces as well

a) Classification of Economic Systems
i) Traditional
a) ideological classification - isms
b) feudalism
c) capitalism
d) socialism
e) communism
f) Imperialism
g) Identifies ownership of production, how basic economic questions are
answered and distribution of income
ii) Modern
a) Looking at economic system as an organization

b) System looks at tools such as:
(1) Nature of Information Mechanism
(2) Behavioral Rules
(3) Decision Making Arrangements
(4) Property Rights

c) Economic Systems are Multidimensional
(1) Economic System is a function of many attributes
(2) *A set of mechanisms and institutions for decision making and for the
implementation of decisions concerning production, consumption, income, and
technology within a given sovereignty*

d) *Attributes of Economic Systems*
(1) Organization of Decision Making Arrangements (structure)
(a) Consists of a set of participants or members regularly interacting.
Turnover in membership exists and the members must be able to change the
activities that the organization pursues.
(b) Organized goals exist; Unorganized goals do not exist
(c) Self-interest is the maximization of some utility function, constrained
by a broad range of human limitations
(d) Problems of Organization
(i) Technical Administrative Problem
(a) Derive from the individuals who are limited in their ability to make
decisions because they do not have enough information -- the system does not
provide enough information
(ii) Agency Managerial Problems
(a) Derive from individuals who, while pursuing self-interest, are pursuing
objectives that differ from those established by the organization
(e) Organization establishes rules to deal with these problems but to
implement rules, organization must be subdivided. Structured Rules determine
how the activities of the organization will be carried out
(f) The more advanced the goal, the more complex the organization must be
(g) Activities of the Organization
(i) Hierarchical
(a) Deals with the principal/agent relationship. Principals are superiors
and agents are subordinates. Principles establish
objectives and assign to subordinates. Subordinates perform assigned task
leading to the achievement of the organization's
goals.
(b) Different levels of Hierarchy
(c) Allocation of tasks
(d) Span of control - number of subordinates directed by supervisors
(e) Changes in hierarchical levels - subordinate becomes a superior
(f) Reasons for hierarchical organization
(g) Risk: risk takers (principals) and risk avoiders (agents) - production
must be hierarchical because the market is hierarchical - principals take
risks and agents do not take risks
(h) costs incurred by the organization (e.g. contracts, legal, insurance...)

(i) Team Production is used for Organizations that are technologically
advanced
(i) superior must provide incentives to the team
(ii) Association
(a) Decision making activities occur among individuals where the
superior/subordinate relationship does not exist
(h) Resource allocation is the way in which the organization generates and
utilizes the authority
(i) Economic Coordination - way in which resources are organized
(ii) Centralization and Decentralization
(a) centralization
(b) decisions made at high level of organization
(c) decentralization
(d) decisions made at low level of organization
(iii) Two factors determine the level of resource allocation: authority and
information
(a) authority - how we distribute resources within a hierarchy
(b) authority is spread throughout the levels of a hierarchy
(c) The single central command has the power or ability to distribute in a
centralized organization
(d) The decision making rests in the sub units in a decentralized state - an
authority oversees and regulates, but does not dictate
(e) information - way in which we utilize resources
(f) In a centralized organization, a single decision maker possesses all of
the information about all participants
(g) In a decentralized organization, decision maker possesses less
information about all participants - information is located at the lowers
levels
(h) Opportunistic Behavior (blackmail) - lower level units use information
to their advantage against higher levels. Two types:
(i) moral hazard - the lower unit exploits information to alter his
relationship with an upper level unit
(j) adverse selection - the lower unit conceals information from principals
(2) Mechanism for Provision of Information and for Coordination (market vs.
planned) Both are Mechanisms for implementation of decision making
(a)* market*
(i) usually associated with decentralization
(ii) buyers and sellers make decisions
(iii) coordinates the activities of decision making unites
(iv) government influences with regulations
(v) externalities - benefits and costs for hired parties
(vi) consumers own economic resources
(vii) exercise of consumer sovereignty
(viii) Communication buyers and sellers communicate and coordinate how
market should work through economic concepts such as opportunity costs,
utility, comparative advantage and so forth
(b) *planned*
(i) usually associated with centralization
(ii) Planning Board
(a) sub-unites directed by a central authority
(b) information discriminated with directive planning
(iii) participants are induced to carry out directives with incentives or
threats
(iv) resources allocated according to direction of organizers
(v) planners preferences prevail over market
(c) France
(i) indicative
(ii) market itself serves as the principal instrument
(iii) plan prepared to guide decision making
(iv) planners seek to see trends beyond what is normally provided by the
market
(v) decisions of the planning board are implemented indirectly through
permits and others
(3) *Property Rights *(control and return on control: income)
(a)* ownership*
(i) refers to various property rights individuals may have over objects or
claims on objects or services
(ii) may be temporary or permanent
(iii) de jure - rightful and legitimate ownership
(iv) de facto - equity - not rightful and legitimate ownership
(b) categories of property rights (ownership rights)
(i) right of disposition
(a) right to transfer the ownership rights to others within or outside the
organization
(ii) right of utilization
(a) use the good or service as the owner deems appropriate
(iii) rights to use the product
(iv) right to protect property
(c) type of ownership
(i) private
(a) right to possess, utilize, and dispose of property rests on the
individual owner(s)
(b) owners maximize the lifetime income of property
(c) capital will yield the highest rate of return
(d) property yields income to individuals
(e) time preferences of ownership determined by the individual
(f) use revenue/cost analysis - profit maximized - where MR=MC
(g) no risk market allocation mechanism
(ii) public
(a) right to utilize and dispose belongs to the state (collective)
(b) use benefit/cost analysis
(c) society determines lifetime income
(d) no risk
(e) time preferences determined by the state
(iii) corporate
(a) property belongs to the group
(4) Mechanism for Setting Goals and for Including and Inducing People to Act
(incentives) important in the transformation, ownership, and organization of
property rights incentive mechanisms induce participants from lower
hierarchical levels to fulfill the directives of higher level participants -
can be material or moral
(a) Conditions of Incentives
(i) The person who is to receive the reward must be able to influence the
outcomes for which the reward will be given
(ii) Superior (principals) must be able to check on subordinates (agents) to
see whether tasks have been executed properly
(iii) Potential reward must matter to subordinates
(iv) *General comments:*
(a) In hierarchy, incentives are important if there is perfect information
to know if tasks are carried our properly
(b) Principal needs to develop incentives for agent to act on interests of
principal
(c) The way that the system is organized affects the information incentives
of principals and agents
(b) Incentives may be material or moral
(i) Material Incentives
(a) typical of modern economical societies
(b) promote desirable behavior by giving the recipient a greater claim over
material goods
(c) give recipient cash bonuses
(d) neoclassical: those who provide inputs to system are rewarded according
to productivity
(e) therefore rewards are offered for higher productivity
(f) can be done when property is not private
(ii) Moral Incentives
(a) Rewards desirable behavior by appealing to recipient's responsibility to
society or company and raises the recipients societal stature within the
community
(b) doesn't give recipients command over material goods
(c) bestows a medal or trophy
(d) moral incentives are more important under public ownership because it
builds into future organizations

*4. Evaluation of Economic Outcomes*

a) *General Comments:*
i) *Economic outcomes* can be systematically related to variations of
economic systems which is the central factor of comparative economic systems

ii) The central focus of comparative economic systems is the
characterization of the differences in economic systems and the influence of
those differences on outcomes
iii) The field of comparative economic systems sustains comparative analysis
using both the theoretical and abstract models and real world variants
iv) Models serve to make comparisons in simple ways and provide a means for
production outcomes to establish a norm for assessing ultimate real world
outcomes.
v) Theoretical models compare and assess theoretical variants
vi) In the real world, complicated measurement problems limit the ability to
relate observed outcomes to theoretical ideas
b) Forces Influencing Economic Outcomes
i) Outcomes
a) *Economic Growth* : increase on output (GDP) of goods and services
produce by an economic system. Economic system increases the output per
capita
b) *Economic Development:* broader than economic growth and includes
societal changes and improvements in the well being of the population threw
innovation and technology (invention), better distribution of income,
increase standard of living, more variety and choice. It is sustained
structural change of an economy.
c) *Efficiency *: the value of what is produced which exceeds the
opportunity costs of all the inputs use to produce it.
technology efficiency is the extensive growth through expanded used of
resources. Economic efficiency is the intensive growth through better use of
resources
d) Income Distribution
e) Stability
f) Trade Offs
ii) Forces that Influence these Outcomes
a) Economic systems
b) Policies
c) Environmental Factors
d) Operational Factors
e) Functional Factors
iii) O = f (ES, Pol, Env, O.F., F.F.)
iv) In addition to Economic Systems (ES), outcomes are influenced by a
variety of forces conveniently aggregated as: environmental, policy,
functional and operational factors
v) It's difficult to isolate them and know their real impact even when
ceteris paribus
vi) Problems of Factors
a) Labor Productivity low in Russia compared to the West
b) Economic Development level in China is low if measured per capita. GDP
compared to US and EU.
c) Agricultural Performance in USSR and England - grain yields were low in
USSR compared to England
(1) Other Elements also affect this: The difference is not only on economic
systems but fertility of land, supply of labor, fertilizer, multiple crop
systems
vii) As outcomes of economic activity of different economic systems will be
studied and evaluated, it is important to identify clear performance
criteria and develop some generally subjective weighting criteria to
aggrandize this criteria
viii) Although the result of such an exercise is mainly subjective, there is
a considerable measure of agreement on the criteria that might be used to
assess economic performance
ix) We must recognize the importance on the economic and non-economic
criteria when observing stability, trade off, efficiency, and income
distribution
x) Economic Growth, Economic Development, and Efficiency
a) Economic Growth
(1) refers to increases in the output of goods and services in a system and
or increases in output per capita
b) Economic Development
(1) societal changes and improvements on the well being of the population
through innovation and technology
c) Efficiency
(1) the effectiveness in which a system uses its resources at a point in
time (static) or through time (dynamic)
xi) Efficiency
a) Extensive and Intensive Economic Growth
(1) *Extensive Economic Growth* - growth achieved through the expanded use
of resources - ability to produce more output through innovation and
invention
(2) *Intensive Economic Growth* - growth achieved through the better use of
resources
(3) Though difficult to measure with precision, the concept of efficiency is
frequently related to extensive economic growth (growth achieved through the
expanded use of resources) and the concept of intensive economic growth
(growth achieved through the better use of resources)
b) Economic and Technological Efficiency
(1) *Economic or Allocative Efficiency* - ability to use resources in the
right places to get the most efficient output - uses Intensive Economic
Growth
(2) *Technological Efficiency* - ability to produce more output through
innovation and invention - Uses Extensive Economic Growth
c) Efficiency and the Production Possibilities Frontier
(1) *Static Inefficiency *- operating within the Production Possibilities
Frontier
(2) Static Efficiency - operating on the Production Possibilities Frontier
(3) *Dynamic Efficiency* - operating outside the Production Possibilities
Frontier
xii) Income Distribution
a) Can be measured with the Lorenz Curve (% of total income vs. % of
householders)
b) Perfect equality would be a straight line on the Lorenz Curve
c) The Gini Coefficient measures the differences in equality and inequality
d) Income Inequality Reflects:
(1) efforts in the provision of labor
(2) frugality - provision of capital
(3) ownership of resources
(4) fortune (luck)
(5) inheritance of physical or mental capabilities
(6) taxes
(7) provision of social services
xiii) Stability
a) ability of an economic system to grow without significant cyclical
fluctuations such as inflation and unemployment - also does not have
fluctuations in economic growth
b) instability leads to losses in output
xiv) Tradeoffs
a) military power, environmental quality, health, education, infrastructure,
democratic political institutions, higher or lower taxes - we must sacrifice
something to obtain something else
b) possibly the ultimate test for an economic system is viability

*5. Variety of Economic Systems*

a) *Capitalism to Communism*

b) *John Locke* - right to govern rests on the people - as well as the right
to property

c) *Adam Smith *- Individuals must be permitted to pursue his own self
interest

d) *Thurow* - Individualism is the important element in an economic system -
when entrepreneurship exists, different income levels exist

e) Capitalism and Communism are based on these above three

f) *Individualistic vs. Communitarian Capitalism*

i) *Individualistic Capitalism - Germany*
a) An individualistic capitalist system encourages freedom - follow one's
own individual self interest - the social well being will be served by any
productive economic activity which self interest generates
ii) Communitarian Capitalism - Japan
a) Economic system in which society will organize and plan the economic
activity. In full communism, man works for society and he will need no wage
incentive to work, but will work according to his need.

g) *Modern Types of Capitalism*

i) *Relative Capitalism* - *United States* - role of government is to
oversee economy rather than redistribute income

ii)* Social Market Capitalism *- government involved in distribution of
income - *Europe*

iii) *State Directed Capitalis*m - *Japan**, Southeast Asia* - allocation of
capital is done by government

*6. Forces Creating Economic Systems*
a) Five concrete forces mold economic systems:
i) *Historic/Cultural Resources* - people and their way of life
ii) *Natural Resources (Factor Environment)* - climate, geography, etc.
iii) *Philosophical System* - beliefs
iv) *Past and Present Theories* - *class, atae, imperialism, democracy,
multinational corporations* how to achieve chosen ideals and goals
v) *Trial and Error / Means and Ends*
b) These five work closely together

*7. What is an Economic System*
a) *Organization for the purpose of satisfying man's unlimited wants/needs
from the utilization of the means of production at its disposal*
b) *System* - those institutions that the organization chooses to use as the
means to utilize resources to satisfy wants

c) *Institution *- a way of making decisions with respect to something (some
system)

d) *Economic System *- consists of the totality of peoples/nations ways of
handling the job of using its resources for the satisfaction of human wants

*8. Economic Institutions*
a) Questions to ask about a country's institutions:
i) Who or what agencies are permitted to own/control what items of wealth?
Who is permitted to own the Factors of Production?
a) *Wealth *- those things that have utility - that provide satisfaction -
that are scarce
ii) Into what lines of economic endeavor may individuals go into their
initiative and what are they permitted or required to do with the proceeds
of such endeavors?
iii) Into what sorts of joint undertakings are individuals permitted to
organize their economic endeavors?
iv) What types of incentives are offered to people to induce them to
participate in the conversion of resources into goods and services?
v) What forces or influences determines the individual benefits people get
from productive activities that go on?
vi) How is the price system used and how does it operate?

*9. Is an Economic System man-made?*
a) All are man made

b) Variables of an Economic System:
i) laws
ii) decrees from authoritative agencies
iii) decisions (judicial)
iv) contractual arrangements
v) habits
vi) customs
vii) opinions
vii) religion

c) *Flexibility* - characteristic of all economic systems

d) modification or change
i) modification is more mild than change
ii) modification can be deliberate or planned
iii) change can be from individual or group
iv) change can be violent or peaceful

*10. History of Economics*
a) *Pre-Modern Economy (Ancient Rome and Greece)*
i) *Ancient Rome*
a) 50 BC to 1158 BC
b) fell because of the lack of Roman ability to understand other cultures
and civil strife
c) first to use a centralized system with a highly skewed distribution of
wealth
ii) *Greeks*
a) standardization of goods and services
b) centralization
b) Medieval Economics; *feudalism*
iii) *England*
a) 1000 AD to 1400
b) expansion of trade
c) concentration of political and economic power in monarchy and church
d) *mercantilism*
e) development of *laissez-faire*
c) Evolution of Laissez-faire market economy
iv) *England*
a) 1830 to 1870
b) move from *demesnes to enclosures*
c) *Mercantilism (*1500 to 1750) - enclosures
ii) *Industrial Revolution*
a) 1750 to 1830
iii) *Market Economy*

a) *Adam Smith, Malthus *(theory that population increase will increase
faster than the supply of food), *John Baptiste Say *(Say's Law that supply
creates its own demand)
b) Prevailed until 1930 when it was gradually modified by looking to
government for productive measures. This gradual modification became known
as *Macro Economics *(*John Keynes* - looking at AD rather than AS). Two
economic systems came from this: Germany and Italy.
iv) *Command Economics*
a) *Germany*
(1) 1933-1945
(2) *Nazism*
(3)* guided market economy*
(4) *national socialism*
(5) *sponsored by Keynes*
(6 change in informal rules and authorities and believed in expansion of
state agenda
b) *Japan*
(1) 1946 to present
(2) *Communitarian Capitalism*
(3) authorities shape (modify) institutions and decisions
(4) interpret and establish work rules
(5) economic system is homogeneous
c) *France*
(1) 1946 to present
(2) *Indicative Planning*
(3) coordination and control of economic activities by the system
d) *Sweden and Scandinavian Countries*
(1) 1932 to present
(2) *Social Insurance and Welfare State*
(3) government redistributes resources
(4) *Market Socialism*
d) *Socialism *(1915 to 1992)
i)* Marxism*
ii) *Stalinism*
iii) *Leninism*
iv) *Fascism*
v) *Titoism in Yugoslavia*
vi) *Maoism in China*

*11. An Alternative History of Economics*

a) *Nomadic*
i) tribal
ii) mobile
b) *Sedentary*
i) farming
ii) efficiency, scarce resources, surplus, specialization and barter
c) *Feudal*
i) serf-lord
ii) sedentary
d) *Mercantilist*
i) trade
e) *Colonial System*
i) slave and trade of scarce items
ii) *Spain and Portugal*
iii) *France, Holland, Great Britain, Italy, and Sweden*
f) *Laissez-faire*
i) agricultural
ii) industrial
iii) service/information

*12. Inheritance*
a) who receives your ownership of resources at death
b)* will *- modified by inheritance tax
c) *state *- modified by inheritance tax - escheat by state
d) you can never own it (e.g. former Soviet Union)

*13. Economic Systems and Economic Power*
a) Economic System determines the economic power of that system. In *
capitalism*, this power is spread widely. The more concentration the exists,
the more power institutions have (government and unions). There is minimal
regulation in capitalism
b) In *socialism*, government centralizes the system. The emphasis is on
public ownership of goods and operation of organizations
c) Today, a mixed system exists.

*14. Universality of Economic Principles (except in Pure Communism)*
a) law of diminishing returns
b) benefit cost analysis/revenue cost analysis
c) supply and demand
d) circular flow
e) equation of change (monetary policies)
f) cause & effect
g) input resources/output resources
h) risk
i) flexibility
j) diminishing utility
k) relationship between principal and agent

*15. Ways of Looking at the Economic System (two ways)*
a) *Market* and how the market works by itself
i) Inputs and outputs are determined by institutions (Circular Flow)
ii) Two Inputs:
a) *Preference articulation* - signs of scarcity and constraint and how
buyers and sellers communicate in the market
b) *Economic Communications* - how buyers and sellers communicate
to sellers in the market (mainly through the price system)
iii) Outputs deal with the basic economic questions
a) What goods would be produced and what amounts?
b) How are goods and services to be produced?
c) Who shall get the goods and services and what amounts?
d) How flexibility will be maintained through changes over time.

b) *Market and Government*
i) Inputs:
a) *Preference Aggregation* - very large sectors telling government what
they want - political parties
b) *Preference Articulation* - citizens or interest groups telling
government what they want - vote
c) Political Communications - media (radio, television, and newspapers)
ii) Outputs:
a) legislative
b) judicial
c) executive

*16. Ultimate Values of a Society and Economic System*
a) examples: equality, freedom, happiness, equity, justice, high standard of
living, economic growth, progress, technology

*17. Goals of a Consumer is an Economic System*
a) Three basic goals:
i) large quantities
ii) low price
iii) good quality
b) Consumers plan for a particular amount of time into the future by
measuring quantities, price and quality
c) Attributes of Consumers:
i) expectations for changes in prices
ii) benefit-cost risk
iii) relationship between principal and agents
iv) consumers know whether they lack a commodity
v) consumers derive satisfaction from a variety of goods and services
vi) prefer more than less
d) Limitations of consumers
i) wealth
ii) time
iii) resources
iv) actions
v) participation in economic system
vi) consumers cannot control prices
vii) decisions of consumption and production take time

*18. Economic Systems*
a) *Traditional*
i) third world countries - subsistence level - no room for growth or
experimentation - often have important resources - highly affected by
culture, religion, etc.

b) *Command*
i) central authority determines how basic economic questions will be
answered - best for economic growth - uses resources at 100% capacity - lack
of choices for consumers - coercive

c) *Market*
i) basic economic questions answered by individuals - specialization exists
- motivated by profit and self-interest - freedom of choice - voluntary

*19. Questions to ask when Comparing Systems*
a) What forces determine the economic system?
b) What is the nature of the economic system?
c) How well does the system perform and interact with other economic
systems?

*20. Forces Influencing Economic Systems*
a) Level of economic development
b) social and cultural factors
c) rate of GDP growth
d) specific forces:
i) type of system (comm., traditional, market, mixed) - private vs. public -
income and substitution effect - works under full reduction or full
employment (not at 100% capacity) - working in short run or long run - rate
of production of market related to the rate of trade - cyclical fluctuations
(inflation, unemployment, etc.) - type of goods produced (normal, inferior,
or superior) - level of income distribution - technology (advanced,
intermediate, or low) - is the system ready for technological changes - what
products are produced - gain in demand due to technological changes? -
technology efficient? (dynamic or static) - who holds the technology and why
is the country in its technological status? - geography - technological
changes can change the system - war and insurrections - change in foreign
trade - transportation and communications - change in debt in international
markets - political relations and international relations - size of market -
availability of resources - stability - changes in laws - homogeneity of
language - nationalism

*21. Nature and Operation of Economic System*
a) functions - how the system gives social preference (utility, comparative
advantage, satisfaction or happiness, welfare, opportunity cost, comparative
and absolute advantage - this is the way in which the system attempts to
reach its ends

b) the economic objectives must match the community preferences and
objectives

c) community decisions will be reached three ways:
i) individual choices and preferences through political system (vote)
ii) individual choices and preferences through economic system (market)
iii) through non electoral processes (dictatorship...)

d) Institutions - organizational arrangements for the production and
distribution prescribed by law and usually not easy to change - tells us how
ownership of production is arranged

e) Instruments - those tools used by the system when it intervenes in
achieving social and economic goals - ex: fiscal policies, government
expenditures, taxes, subsidies, transfer payments, monetary policies,
exchange rates, price controls, wage controls...)

*22. Classification of Economic Systems*

Economic systems must be structured according to some features. The problem
is that they are difficult to classify.
a)* level of economic development*
i) changes in systems from technological advancement
ii) economic systems developed - no system, barter, monetary, (credit)
iii) *Rostow *- traditional economy - transitional economy - industrial and
sustained economic development - sustained maturity
iv) *Marx - capitalism, socialism, communism*
v) can be looked at geographically, nationally, or internationally
vi) rate of development
vii) problems of looking at economic development
a) economic systems are diverse and systems exhibit lots of similarities in
economic development - same economic development without the same technology

b) can classify countries as underdeveloped when they do not think they are
underdeveloped - motivational structure - Japan, US, Russia - similar levels
of development but they are very different

b)* resource basis*
i) factors of production - factor endowment - resources - we are looking at
the nature of the resources - US is labor (skilled) based - is resource base
skilled or unskilled - what about natural resources
ii) Three classifications:
a) *laborist *- skilled or unskilled
b) *naturalist* - emphasizes the use of natural resources
c) *capitalist* - heavy reliance on capital and machinery - UK, Russia, US,
Scandinavian Countries, Japan

c) *ownership and control of means of production*
i) *public*
a) ownership rests in government - individuals cannot manage resources -
also public services and government corporations exist (China, Cuba)
ii) *private*
a) closest in US - no productive activity owned by government - does not
include non-profit - ownership and management is fused into one or may be
separated
iii) *corporate*
a) enterprise - voluntary associations of economic activities for mutual
benefit - activities may be broad like manufacturing, retailing, credit -
members are not employees or stockholders

d) l*ocus of economic power*
i) decision making - where power is located and who makes decisions
ii) Three types:
a) *Individualistic*
(1) power is dispersed among large amount of individuals (ex: circular flow)

b) *Collectivist*
(1) power to formulate goals is vested in national or central authority and
it is used to formulate and execute economic programs for the society as a
whole (UK, USA, Australia)
c) *Organization*
(1) power dispersed among many organizations

e) *motivation of decision makers*
i) how can economic system be motivated
ii) market: profit and non-profit
iii) non-market: honor, collective, power, status

f) *the informational system*
i) *price *- presented in all systems - degree to which uses the price
system varies
ii) *commands* - how decision will be passed from superior to inferior
(India, China, Cuba)
iii) d*ata on physical units of input* -capacities of company
iv) types
a) *horizontal* - among equals
b) *vertical *- between hierarchies
c) *scattered* - both horizontal and vertical - what happens in market

g) *organization of economic power* - related to but not equal to locus of
power
i)* centralized *- power in large central organizations - power given to
provinces but most control is centralized - ex: Soviet Union with central
economy and eleven republics
ii) *decentralized*- power to make economic decisions in a dispersed form -
individual householders making decision
iii) *semis*

h) *separation vs. concentration of powers*
i) *Switzerland *- concentration of powers but decentralized
ii) *France* - concentration of powers but decentralization
iii) *Costa Rica* (Small countries) - separation with centralization
i) Social Process of Economic Coordination
i) Coordination of Economic Activities
a) problem of social knowledge and social control - coordinating powers to
achieve goals
b) Four parts:
(1)* market* - demand and supply and equilibrium - relationship of
householders and businesses - buyers and sellers - prices may or may not
guide system
(2) *bureaucracy* - economic decisions are based on budget - power passes
from top down - pyramid - often through planned directive through revenue
cost or benefit cost - determines minimum wages in U.S.
(3) *democracy* - majority rule (republic is rule of majority with the voice
of minority) - larger group influences - democracy has 3 connections with
economic coordination - (1) process economizing - (2) shapes and changes in
process economizing - (3) means of controlling bureaucracy (4) bargaining -
policy makers mutually controlling one another - they organize power into
blocs when they are too small (Galbrith) - usually takes places more in
traditional economic systems
ii) *How Price System is Used* - Price system or mechanism for using
knowledge
a) efficient allocation of economic systems requires knowledge
b) market knowledge works better in a decentralized system (Hayek)
- economic systems are rational - we use economic data to study markets, but
it can be manipulated
c) *how to allocate resources depends on knowledge*
(1) *scientific* - experts have active role
(2)* non-scientific* - knowledge that exists without expert - time and
circumstances activate economic decision without anyone controlling
circumstances
(3)* de-centralized* - knowledge of facts about market - many participants -
price system coordinates actions
(4) *centralized* - price system is guided - collective knowledge
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