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Economic Systems.

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Presentation on theme: "Economic Systems."— Presentation transcript:

1 Economic Systems

2 Why do we have Economic Systems?
Survival for any society depends on its ability to provide food, clothing, and shelter for its people. The Economic System is the organized way a society provides for the wants and needs of its people.

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 Scarcity = a permanent lack of resources not having enough of something An economic system must answer 3 questions…

4 Key Economic Questions
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 consume the goods and services?

5 Economic Systems Traditional Economy Command Economy Market Economy
Mixed Economies Most are mixed

6 Traditional Economy Economic activity is based on ritual, habit and custom

7 Traditional Economy Examples: Villages in Africa and South America
the Inuit tribes in Canada the caste system in parts of rural India the Aborigines in Australia


9 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

10 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


12 Strengths of Traditional Economies
Everyone knows their role Little uncertainty over what to produce or how to produce The question of For Whom to produce is answered by custom Life is generally stable, predictable, and continuous

13 Weaknesses of Traditional Economies
Tends to discourage new ideas Lack of progress leads to lower standard of living

14 Economic PhilosophersMarxist / Communist
Karl Marx Freidrich Engles Vladimir Lenin founded the Soviet Union

15 Command Economy Central authority makes most economic decisions
Economic decisions are made at the top and the people are expected to go along with choices their leaders make

16 Command Economy Government makes all economic decisions & owns most of the property Government 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

17 Strengths of Command Economies
Change direction drastically in a relatively short time (The USSR went from an agrarian to industrial nation in a very short time)

18 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

19 Command Economic System
Countries with communist governments have had Command economies Examples: There are no truly pure command economic systems, but close countries are: North Korea and Cuba *China and Russia have moved away from having command economies since Now they have mixed economies, but still government planning and intervention.

20 Weaknesses of Command Economy
Not designed to meet the wants and needs of individuals Lack of incentives to work hard leads to unexpected results Large bureaucracy for economic planning Not flexible in dealing with minor day to day problems People with new or unique ideas are stifled *

21 Succeeded by his son, Kim Jong-Un
Kim Jong-Il of North Korea (below) Died in December 2011. Succeeded by his son, Kim Jong-Un A propaganda poster of the Soviet Union

22 Economic PhilosophersFree Market
Adam Smith wrote The Wealth of Nations Add name here Add name here

23 Market Economy Markets allow buyers and sellers to come together in order to exchange goods and services People and firms act in their own best interest to answer economic questions.

24 Market Economy An economic system in which production and distribution questions are answered by prices and profits (supply and demand) 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 government but by individuals Government does not tell a business what goods to produce or what price to charge

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

26 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 For whom are the goods and services produced? Consumers

27 In a truly free market economy, the government would not be involved at all
There would be no laws to protect workers form unfair bosses There would be no rules to make sure that credit cards were properly protected Many societies have chosen to have some rules to protect consumers, workers, and businesses (MIXED) These rules reduce the freedoms that businesses have, but they also protect the workers and consumers

28 Weaknesses The primary weakness is deciding for whom to produce
The young, sick and old would have difficulty in a pure market environment Markets sometimes fail Competition monopolies may develop Resource mobility resources are sometimes hindered from moving about Availability of information producers often have more information than do consumers, which gives them advantage

29 Mixed Economy There are no pure command or market economies.
Market + Command = Mixed There are no pure command or market economies. To some degree, all modern economies exhibit 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 governments regulates certain industries

30 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

31 Mixed Economies there are no truly pure Market or Command economies
Most democratic countries fall in this category there are no truly pure Market or Command economies Examples: Brazil, Mexico, Canada, UK, US, Germany, Russia, Australia, etc.

32 Economy Continuum Command Market UK Australia North Korea Russia
Germany US Hong Kong, Singapore Cuba China

33 Which Economic System is Best?
The Market system has proven to be best at promoting the goals of growth, freedom, & efficiency Citizens are free to own their own property and use it in the most efficient and profitable way Command and Traditional systems sometimes offer more security, but are not nearly as strong in efficiency, growth, freedom, and environmental quality

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