1. Types of Economies UNIT VI – Fundamentals of Economics

2. How do we know?  In order to understand which type of economy a country has, a few factors need to be looked at  How much economic freedom does the consumer have?  How much is the government involved controlling and distributing resources?  How much is the government involved in regulating businesses?

3. 4 Types  There are essentially 4 types of economies  Market Economies  Command Economies  Mixed Economies  Traditional Economies

4. Market Economy  Provide the most economic freedom for citizens  There is VERY little to NO government involvement  In this system the consumers make the decisions that effect the economy

5. Market Economy Concepts  Consumer Sovereignty – the consumers hold the power  Capitalism – citizens own most, if not all, of the factors of production

6.  Free Enterprise – businesses can be freely created to compete with others  Laissez-faire – government should stay out of economic matters  Profit Motive – the ability to make a profit and improve well being motivates people to work harder  Private Property Ownership – gives incentive to work, save, and invest

7. Market Economy Supporter: Adam Smith  Wrote “The Wealth of Nations” in 1776  Claimed that the “invisible hand” of the market would guide businesses to act in the best interest of all

8. Command Economy  Provide the least economic freedom for citizens  The government controls most, if not all, the factors of production  In this system the consumers have very little influence  Tend to be ineffective and grow slowly

9. Command Economy Concepts  Socialism – Belief that all factors of productions should be owned and controlled by society, wealth should be evenly distributed  Communism – next step after socialism, government answers all economic questions and controls everything

10. Command Economy Supporter: Karl Marx  Wrote “The Communist Manifesto” in 1848  Believed socialism would evolve into communism  One class would evolve and all property would be held in common

11. Mixed Economy  Provide some economic freedom for citizens  The citizens and government share control of the factors of production  Varying degrees of a mixed economy can occur  Most common type of economy today  U.S. has a mixed-market economy – meaning we are mixed but lean towards a market system more

12. Mixed Economy Supporter: John Keynes  Developed a new theory, the Keynesian Theory, of economics in the 1930s that supported a mixed concept of economics  Has been credited with changing the way most of the world views economics

13. Traditional Economy  Economic decisions are based on custom or habit  Things are done the way they have always been done  Leads to very little advancements  Tend to be very poor, agriculturally based countries