Economic System When deciding how to use its limited resources, every country answers 3 questions about production and distribution. 1. What will be produced? (t.v., computers, wheat, airplanes) 2. How will it be produced? (with machines, tools, factories) 3. For whom will it be produced? (wealthy people, ordinary people) How a country answers these questions depends on the type of economic system they have. Four types of Economic System 1.Traditional Economy 2.Command Economy 3.Market Economy 4.Mixed Economy Traditional Economy Based on customs and traditions of a country. Economy is based on farming and hunting. People will make what they always make; they will do the same work their parents did. Examples: Parts of Africa, India, Amish Command System Government owns and operates the factors of production. The government would decide who would be farmers, what they would grow, and how much would be turned over to the government. Also called communism, socialism Examples: North Korea, Cuba Command System Pros Cons Everyone is equal Fairness No rich vs. poor Everyone has a job Everyone has a home No Freedom Very inefficient Does not respond well to changes shortages/surplus No motivations to work Market (Capitalist) System Individuals own and operate the buildings, machinery, property of production. Production and distribution questions are answered by prices and profits. Businesses will make products, and provide services that will earn a profit. Standard of living is higher in this system Prices of goods depend on how much is available and how much people want it. Examples: Brazil, Kenya, United Kingdom Market Economy Pros Cons Freedom You can be and do whatever you decide Motivation to make money Motivation to invent Responds quickly to changes Rich get richer Homeless people Unemployed Not fair Very competitive Encourages greed Mixed Economy Individuals own most resources and determine what and how to produce. Government regulates certain industries Has features of both market and command economies. Example: China, U.S., Canada The US has a market economy but the government still has control over wages, social security and some policies.