Economic SystemsChapter 16

What are economic systems?

Economic systems: A nation’s way

of producing things it’s people want and need

The 3 Basic Economic Questions• 1) What goods and services will be produced?• 2) How will they be produced?• 3) Who will consume or use them?

Traditional EconomyDecisions on what, how, and for whom to produce are

based on custom or habit

Examples: African TribesEskimos Brazilian RainforestFarmers

Advantages• Jobs for all members of the community• Stable, predictable, and continuous life• Revolves around family• Communities stay relatively close and

small

Disadvantages

• Discourages new ideas, new technology, and new ways of doing things

• Stagnation and lack of progress

• Lower standard of living – lack modern conveniences

• Hard to deal with disasters such as floods, drought

Market EconomyIndividuals and businesses make

economic decisions based on price

Examples:

United States

Advantages• Individual freedom for

everyone• Little government

interference• Make your own

decisions• Variety of goods and

services• High degree of

consumer satisfaction

Disadvantages• Rewards only

productive resources; does not provide for people too young, too, old, or too sick to work

• No guarantee for job• Does not produce

enough public services such as universal education or health care

Command EconomyGOVERNMENT makes the major

economic decisions for you

EXAMPLES: CUBANORTH KOREAVIETNAM

Advantages• Government is in command of the economy• Capable of dramatic change in a short time• Little uncertainty over choice of career,

where to work, or losing job• Many basic education, public health, and

other public services available at little or no cost

Disadvantages• Does not meet wants and

needs of consumers• Lacks effective incentives

to get people to work• New and different ideas

discouraged, no room for individuality

Mixed Market Economyhas some elements of all three

other types of economies

EXAMPLES: USAItalyCanadaGermanyFrance

The degree of government involvement in the economy varies among nations, and can

affect its society.

Continuum of Mixed Economies

Centrally planned Free market

Iran

North Korea

Cuba

China

Russia Greece Peru United States

South Africa France United Kingdom

Botswana Canada Singapore

Hong Kong