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Economic Systems
Mr. Kraus Economics
Why do we have Economic Systems?
• Scarcity• Survival for any society depends on its
ability to provide food, clothing, and shelter for its people.
• The Economic System is the organized way a society provides for the wants and needs of its people.
Three Economic Systems
• Traditional Economy
• Command Economy
• Market Economy
Economic Questions
Traditional Economy
Market Economy
Command Economy
What to Produce
How to produce
For whom to produce
Traditional Economy• Economic
activity is based on ritual, habit and custom
Strengths of Traditional Economies
• Everyone knows their role• Little uncertainty over what to
produce or how to produce• The question of For Whom to
produce is answered by custom• Life is generally stable, predictable,
and continuous
Weaknesses of Traditional Economies
• Tends to discourage new ideas
• Lack of progress leads to lower standard of living
Market Economy• Markets allow
buyers and sellers to come together in order to exchange goods and services
Market Economy•People and
firms act in their own best interest to answer economic questions
Strengths• Markets can adjust over time• Freedom exists for everyone involved• Relatively small degree of
governmental influence• Decision making is decentralized• Variety of goods and services are
produced• High degree of consumer satisfaction
Weaknesses• The primary weakness is deciding for
whom to produce• The young, sick and old would have
difficulty in a pure market environment
• Markets sometimes fail
Command Economy
• Central authority makes most economic decisions
• Economic decisions are made at the top and the people are expected to go along with choices their leaders make
Strengths of Command Economies
• Change direction drastically in a relatively short time
Weaknesses of Command Economy• Not designed to meet the wants and needs of
individuals• Lack of incentives to work hard leads to
unexpected results• Large bureaucracy for economic planning• Not flexible in dealing with minor day to day
problems• People with new or unique ideas are stifled
BRAINSTORM
Which of theses systems best describe the economy of the United States?
Mixed Economy
-No Economic System is purely Command or purely Market .
-ALL economic systems use some combination of command and market features. LIKE A CONTINUUM
Example: North Korea
• Look for a few key elements– Government
– Values
– Standard of living
– Answer the 3 economic questions
In pods
• Answer the 3 economic questions
• Decide which type of economic system best describes North Korea’s economy
• Discuss: Based on this video, how can you tell the type of economy North Korea has?
Example: India
• Look for a few key elements– Government
– Values
– Standard of living
– Answer the 3 economic questions
https://www.youtube.com/watch?v=PZpDjxIPpFc&feature=player_detailpage
In Pods
• Answer the 3 economic questions
• Decide which type of economic system best describes India’s economy
• Discuss: Based on this video, how can you tell what type of economic system India has?
Now find your own!• Choose 2 countries.
• Research those countries (as well as India and the U.S.)
Things to think about:
Government
Standard of Living
Values
3 Economic Questions
Choose one of the countries you researchedIn 1 paragraph, tell me what country you have chosen, what are some of the values your country has, and what type of economic system has. Make a connection between the country’s values and the economic system.