ECONOMIC SYSTEMS. ALL economic systems Organized ways of providing for wants and needs of a...

ECONOMIC SYSTEMS

ALL economic systems

• Organized ways of providing for wants and needs of a country’s people

• Answer the 3 basic economic questions

• Have to deal with SCARCITY of resources

• Have trade-offs

• Have opportunity costs

Four Economic Systems

• Traditional

• Market

• Command

• Mixed

Traditional Economic System• Economic questions answered based on

ritual, habit, or custom

• Individuals NOT free to decide

• Customs of elders and ancestors decide

• Examples: indigenous tribes in Africa, Australia, New Guinea, north Canada

• Advantages?

• Disadvantages?

Market Economic Systems

• What, how, for whom questions answered– By individuals and firms in marketplace

• Individuals are free to make decisions

• Producers make goods that consumers like

• Individuals’ incomes determine division of output (who gets what, how much)

• Private ownership and control of resources

• People depend on voluntary exchange

Considerations about Market Economies

• They CANNOT guarantee economic security and fairness – no equal distribution of $

• They depend on entrepreneurship– Entrepreneurs depend on government patents

• Unlike traditional economies, market economies adjust to consumer demands

• They provide efficient use of resources which leads to economic growth

Command Economic Systems• 3 economic decisions based on governmental

regulation

• Government owns means of production– Factories, utilities, transportation, etc.

• Little or no individual freedom or choice – Compared to market economy– Example: communist North Korea, Cuba

Considerations about Command Economies

• Can change direction in short time– Ex. USSR under Stalin

• Provide economic security services to people– Ex. Housing, jobs, food, healthcare

• Modern command economies have failed– MAIN reason: government decision-making led to

shortages and inefficiency

• LESS freedom and LESS efficiency than market economies

Communist Command Economies

• THEN: COLD WAR• Afghanistan, Albania,

Angola, Benin, Bulgaria, Cambodia, Congo, Czechoslovakia, East Germany, Ethiopia, Hungary, Mongolia, Mozambique, Poland, Romania, Somalia, South Yemen, Soviet Union, and Yugoslavia

• NOW• *China• Cuba• Laos• North Korea• *Vietnam

• *”Hybrid” countries: Communist government, increasingly market economy

Mixed Economic System

• MOST nations in the world today have mixed economies

• USA is a mixed economy – Government command elements?