1. Economic Systems

2. Simply stated, economics is the study of choices about using resources
What is ECONOMICS?
Simply stated, economics is the study of choices about using resources

3. Economic Systems
An economic system describes how a country’s economy is organized
Because of the problem of scarcity, every country needs a system to determine how to use its productive resources
An economic system must answer 3 basic questions…

4. Economic Systems
WHAT TO PRODUCE? (What kinds of goods and services should be produced?)
HOW TO PRODUCE? (What productive resources are used to produce goods and services?)
FOR WHOM TO PRODUCE? (Who gets to have the goods and services?
The way a society answers these questions determines its economic system.

5. Four Types of Economic Systems:
1. Traditional Economy
2. Command Economy
3. Market Economy
4. Mixed Economy (Market + Command)

6. Traditional Economy
An economic system in which economic decisions are based on customs and beliefs
People will make what they always made & will do the same work their parents did
Exchange of goods is done through Bartering: trading without using money

7. Traditional Economy Who decides what to produce?
People follow their customs and make what their ancestors made
Who decides how to produce goods & services?
People grow & make things the same way that their ancestors did
Who are the goods & services produced for?
People in the village who need them

8. Traditional Economy Examples:
Villages in Africa and South America; the Inuit tribes in Canada; the caste system in parts of rural India

9. Disadvantages--Traditional
Can’t always find what you want when trading with others--Limits
Not high technology

10. Advantages--Traditional
Maintain Cultural Beliefs
Simple
Everyone is equal

11. Command System
System where the government makes all economic decisions & owns most of the property
Governmental planning groups determine such things as the prices of goods/services & the wages of workers
This system has not been very successful & more and more countries are abandoning it

12. Command Economy Who decides what to produce?
Government makes all economic decisions
Who decides how to produce goods and services?
Government decides how to make goods/services
Who are the goods and services produced for?
Whoever the government decides to give them to

13. Command System
Countries with communist governments have Command economies
Examples: Cuba, former Soviet Union, North Korea
*Germany and Russia have moved away from having a Command economy since Now they have a Mixed economy.

14. Disadvantages--Command
Everyone is paid the same
Not very efficient—no motivation to change
No Private Ownership
Little say from the citizens

15. Advantages--Command
Every one is equal
No Competition
Very low crime

16. Market Economy
An economic system in which economic decisions are decided by individuals in their own self interest.
Most of the resources are owned by private citizens
Economic decisions are based on Free Enterprise (competition between companies)
Important economic questions are not answered by gov. but by individuals
Gov. does not tell a business what goods to produce or what price to charge

17. Market Economy Who decides what to produce?
Businesses base decisions on supply and demand and free enterprise (PRICE)
Who decides how to produce goods and services?
Businesses decide how to produce goods
Who are the goods and services produced for?
Consumers

18. Market Economy
There are no truly pure Market economies, but the United States is close.

19. Advantages--Market Government role is limited
Leads to better products (Innovation)
Most people work hard (afraid to lose job)
Privately owned businesses (opportunity for all ?)

20. Disadvantages--Market
Can lead to higher prices
Some important things get overlooked in the raise for profits
Many poor and few wealthy
Large companies can exploit labor
Over supply of goods (WHY?)

21. Mixed Economy Market + Command = Mixed
There are no pure command or market economies. To some degree, all modern economies have characteristics of both systems and are often referred to as mixed economies.
Most economies are closer to one type of economic system. than another.
Businesses own most resources and determine what and how to produce, but the Government regulates certain industries

22. Mixed Economy Who decides what to produce?
businesses
Who decides how to produce goods and services?
Businesses, but the government regulates certain industries
Who are the goods and services produced for?
consumers

23. Mixed Economy
Most democratic countries fall in this category (there are no truly pure Market or Command economies).
Examples: Brazil, Mexico, Canada, UK, etc.

24. Advantages--Mixed Consumers have a LOT of choices
Promotes competition which can benefit the buyer (HOW?)
Consumer protection from harmful products
Freedom to make decisions

25. Disadvantages--Mixed
Can lead to high taxes
Producers have to find their own markets for the goods they offer
Unproductive workers
Adds to the social class divide

26. YOUR TURN----
Take 2 minutes to decide which economic system, in your opinion, is best for a society.
Make sure you list at least one SOLID reason to support your belief.
Be ready to share in a group.