Economic SystemsEconomic Systems

Thursday, 3/1Thursday, 3/1 Write your homework in your agendaWrite your homework in your agenda Write and answer the following question Write and answer the following question

on page 131: on page 131: What is a tariff? What is a tariff?

Economic SystemsEconomic Systems An An economic systemeconomic system describes how a describes how a

country’s economy is organized.country’s economy is organized. because of the problem of because of the problem of scarcityscarcity, every , every

country needs a system to determine how to country needs a system to determine how to use its productive resourcesuse its productive resources

An economic system must answer three An economic system must answer three (3) basic questions…(3) basic questions…

Economic SystemsEconomic Systems WHAT TO PRODUCE? WHAT TO PRODUCE?

What kinds of goods and services should be produced?What kinds of goods and services should be produced? HOW TO PRODUCE? HOW TO PRODUCE?

What productive resources are used to produce goods What productive resources are used to produce goods and services?and services?

FOR WHOM TO PRODUCE? FOR WHOM TO PRODUCE? Who gets to have the goods and services?Who gets to have the goods and services?

The way a society answers these questions The way a society answers these questions determines its economic system.determines its economic system.

Four Types of Economic Four Types of Economic Systems:Systems:

1. Traditional Economy1. Traditional Economy

2. Command Economy2. Command Economy

3. Market Economy3. Market Economy

4. Mixed Economy (Market + Command)4. Mixed Economy (Market + Command)

Traditional EconomyTraditional Economy an economic system in which economic an economic system in which economic

decisions are decisions are based on customs and based on customs and beliefsbeliefs

People will make what they always have People will make what they always have made and will do the same work their made and will do the same work their parents did.parents did.

exchange of goods is done through exchange of goods is done through barteringbartering (trading without using money) (trading without using money)

Traditional EconomyTraditional Economy Who decides what to produce?Who decides what to produce?

people follow their customs and make what their people follow their customs and make what their ancestors madeancestors made

Who decides how to produce goods & Who decides how to produce goods & services?services? people grow & make things the same way that their people grow & make things the same way that their

ancestors didancestors did For whom are the goods and services For whom are the goods and services

produced?produced? people in the village who need thempeople in the village who need them

Traditional Economy Traditional Economy Examples:Examples:

villages in Africa and South Americavillages in Africa and South America Inuit tribes in CanadaInuit tribes in Canada

Command SystemCommand System government makes all economic decisions & government makes all economic decisions &

owns most of the propertyowns most of the property governmental planning groups determine such governmental planning groups determine such

things as the prices of goods/services & the things as the prices of goods/services & the wages of workerswages of workers

This system has not been very successful & This system has not been very successful & more and more countries are abandoning it.more and more countries are abandoning it.

Command EconomyCommand Economy Who decides what to produce?Who decides what to produce?

government makes all economic decisionsgovernment makes all economic decisions Who decides how to produce goods and Who decides how to produce goods and

services?services? government decides how to make goods/servicesgovernment decides how to make goods/services

For whom are the goods and services For whom are the goods and services producedproduced?? whomever the government decides to give them towhomever the government decides to give them to

Command SystemCommand System countries with communist governments have command countries with communist governments have command

economieseconomies

Examples: Examples: Cuba Cuba former Soviet Unionformer Soviet Union North KoreaNorth Korea

*Germany and Russia have moved away from having a *Germany and Russia have moved away from having a command economy since 1991. Now they have a mixed command economy since 1991. Now they have a mixed economy.economy.

Market EconomyMarket Economy an economic system in which economic an economic system in which economic

decisions are guided by the changes in decisions are guided by the changes in prices that occur as individual buyers and prices that occur as individual buyers and sellers interact in the market placesellers interact in the market place A.k.a: Based on what the people want! And A.k.a: Based on what the people want! And

how much they’re willing to pay! how much they’re willing to pay! most of the resources are owned by most of the resources are owned by

private citizensprivate citizens economic decisions are based on economic decisions are based on free free

enterpriseenterprise (competition between (competition between companies)companies)

Market EconomyMarket Economy Who decides what to produce?Who decides what to produce?

businesses base decisions on supply and demand businesses base decisions on supply and demand and free enterprise (PRICE)and free enterprise (PRICE)

Who decides how to produce goods and Who decides how to produce goods and services?services? businesses decide how to produce goodsbusinesses decide how to produce goods

For whom are the goods and services For whom are the goods and services produced?produced? consumersconsumers

Market EconomyMarket Economy There are no truly pure market There are no truly pure market

economies, but the United States is economies, but the United States is close.close.

Mixed EconomyMixed Economy Market + Command = MixedMarket + Command = Mixed There are no pure command or market economies. There are no pure command or market economies.

To some degree, all modern economies exhibit To some degree, all modern economies exhibit characteristics of both systems and are often characteristics of both systems and are often referred to as referred to as mixedmixed economies. economies. Most economies are closer to one type of Most economies are closer to one type of

economic system than another.economic system than another. Businesses own most resources and determine what Businesses own most resources and determine what

and how to produce, but the government regulates and how to produce, but the government regulates certain industries.certain industries.

Mixed EconomyMixed Economy Who decides what to produce?Who decides what to produce?

businessesbusinesses Who decides how to produce goods and Who decides how to produce goods and

services?services? businesses, but the government regulates certain businesses, but the government regulates certain

industriesindustries For whom are the goods and services For whom are the goods and services

produces?produces? consumersconsumers

Mixed EconomyMixed Economy Most democratic countries fall in this Most democratic countries fall in this

category category (there are no truly pure market (there are no truly pure market or command economies).or command economies).

Examples: Examples: BrazilBrazil MexicoMexico CanadaCanada United KingdomUnited Kingdom

Which economic system is Which economic system is best?best?

The market system has proven to be best The market system has proven to be best because it promotes the goals of growth, because it promotes the goals of growth, freedom, & efficiency.freedom, & efficiency. Citizens are free to own their own property and Citizens are free to own their own property and

use it in the most efficient and profitable way.use it in the most efficient and profitable way. Command and traditional systems sometimes Command and traditional systems sometimes

offer more security but are not nearly as offer more security but are not nearly as strong in efficiency, growth, freedom, and strong in efficiency, growth, freedom, and environmental quality.environmental quality.