Economic Systems

Types of Economic Systems

Traditional Economic System Based on beliefs, customs and ways of

doing things handed down from generation to generation

Developed out of cultural and religious values

Most are outgunned by stronger financial, political and military forces

Ex: Middle East, Rural parts of Africa and Latin America

Command Economic System Government controls the factors of production

and makes all decisions about their use Ex: Former Soviet Union, North Korea

Socialism is part of command economy - government manages some business Communism is also part of command

economy - resources owned by govt., govt. plans use of

all resources, govt. controls all businesses

Market Economic System Individuals own the factors of production

and make economic decisions through free interaction

The government does not intervene Also called a capitalist economy Ex: United States, Germany Also called a mixed economy because the

government controls some industry

6 Major Characteristics of a Market Economy

1. Little or no government control 2. Freedom of enterprise- people are free to

own and control factors of production 3. Freedom of choice- buyers make decisions

on what should be produced 4. Private Property- individuals or groups own it 5. Profit incentive- desire to make a profit,

people are moved to make products people want

6. Competition- rivalry among producers or sellers of similar good to win more business

What system is the United States? Some argue that we are a market economy We do not have a pure market economy We have a mixed economy (govt. controls

some industry) Mixed- combining characteristics of more than

one type of economy U.S. examples Market- malls, restaurants, entrepreneurship Command- minimum wage, labor laws, martial

law Traditional- “blue laws” restricting activities or

sales of goods on Sunday