1. Economic Systems

2. Problems All Economies Face
Unlimited
Wants
Limited
Resources
Scarcity
Scarcity forces all countries to answer these 3 questions
Scarcity leads to conflict
1. What to produce?
2. How to produce it?
3. Whom to produce it for?

3. Do All Countries Answer These Questions The Same Way?No
Conflicts arise in all economies

4. Different Countries Use Different Systems To Answer These Questions
Major Economic Systems Include:
Market
Traditional
Command

5. Market Economic System
Also known as Capitalism, Free Market, or Free Enterprise
Defined: ownership of resources and means of production by individuals, basically free of government control in deciding goods and services produced
Ownership of Resources: Productive resources privately owned and operated

6. Market Economic System
Allocation of Resources: Resources are obtained through the lure of profits in the market
Role of Government: Government only tries to make sure there is some competition and provides some public goods

7. Market Economic System
Goals: Profit for individuals, people are motivated by economic rewards
Methods: Competition, supply and demand
Characteristics: Private property, specialization, minimal government regulation
Political System: Democracy/Parties
Current World Examples:
Switzerland Canada Australia Chile Argentina South Africa

8. Command Economic System
Defined: An economy in which all of the major economic questions are answered by a central authority
Ownership of Resources: All Productive resources are owned and operated by the government

9. Command Economic System
Allocation of Resources: Central planning group directs all resources
Role of Government: Government makes all decisions

10. Command Economic System
Goals: Equal distribution of income
Methods: Revolution to gain control, no opposition forces allowed
Characteristics: no private property, one political party
Political System: Totalitarian
Current and Former World Examples:
Cuba North Korea China Former Soviet Union

11. Traditional Economic System
Defined: An economic system that does things as it always has
Ownership of Resources: All productive resources are owned by families
Allocation of Resources: Based of customs and traditions within the tribe
Role of Government: Tribes play some role in making economic decisions

12. Traditional Economic System
Goals: Keep things how they have always been
Methods: Customs and traditions passed down through family lineage
Characteristics: Children follow in parent’s footsteps, lack of economic growth
Current Examples:Aborigines Australia
Mbuti Pygmies of the Congo Kung Bushmen of Africa
Political System: Tribal Organizations

13. No Pure System Is Perfect: Market
Strengths:
Able to change gradually
Individual freedom for all
Lack of government Interference
Variety of goods and services
High consumer satisfaction
Promotes economic freedom and growth
Weaknesses:
Does not protect the young, sick, old who cannot work
Market failures happen leading to lots of ups and downs
Doesn’t promote economic security, equity, or efficiency as well as other systems

14. No Pure System Is Perfect: Command
Strengths:
Things can be changed dramatically in a short time
Promotes economic security, efficiency, and equity
Weaknesses:
Does not meet the needs and wants of consumers
Lacks effective incentives to get people to work
Needs a large bureaucracy which consumes resources
Inflexible for day-to-day changes
New and different ideas discouraged, people can’t be individuals
Doesn’t promote: economic growth or freedom

15. No Pure System Is Perfect: Traditional
Strengths:
All members of the community have defined roles
Stable, predictable, and continuous life
Promotes: economic security and equity
Weaknesses:
Discourages new ideas or ways of doing things
Stagnation and lack of progress
Doesn’t promote economic growth or freedom

16. If No Pure System Is Perfect Then What?
Most countries in the world are a blend of different elements
They are called mixed or combination systems
Market Command
Economies

17. Mixed Economic System
Defined: A system in which economic questions are answered by a combination of command and market methods
Ownership of Resources: Basic utilities, other important resources government owned and operated; the rest privately owned and operated

18. Mixed Economic System
Allocation of Resources: Government plans where resources go for key industries
Role of Government: Government directs its plans for the biggest, key industries only

19. Mixed Economic System Goals: Equal distribution of income
Methods: High Taxes
Characteristics: Limited competition, lots of government planning, many services paid for by government: health, education, welfare
Current World Examples:
England Germany Sweden Egypt
France Italy Hungary Mexico
Political System: Socialist democracy, political parties voted in

20. Mixed Economic System Strengths and Weakness vary by country
Generally these countries experience the same ups and downs that market economies like the United States experience