1. Types of Economic Systems

2. How do nations decide what type of economic system to have?
Scarcity results from the combination of limited resources and unlimited wants.
So scarcity forces us to make choices among ways to spend our time and money (both of which are resources).
Nations also must make choices in order to use factors of production efficiently.
Leaders of a nation must address three basic economic questions: what, how, and for whom to produce.

3. What types of Economic systems are there?
There are 3 basic economic models. All economies are actually a combination of these models.
Traditional Economy
Command Economy
Market Economy

4. Traditional Economies
What to Produce
Determined by tradition
Economic roles often passed from generation to generation
How to Produce
Determined by custom
For Whom to Produce
Centered around traditional family and social units: tribe
Aborigines of Australia

5. Command Economies
What to Produce
Determined by government officials
How to Produce
Determined by government officials
For Whom to Produce
Determined by government officials
Zhou Dynasty, China

6. Market Economies
What to Produce
Determined by individuals
How to Produce
Determined by individuals
For Whom to Produce
Determined by individuals
United States of America

7. Self-Interest
“Invisible Hand” theory
(A rising tide lifts all ships!)
Individuals pursue their own self interest
Self-Interest = $, support family
Each economic actor positively affects each other economic actor
Adam Smith
Wealth of Nations
No government involvement! (Laissaiz Faire)

8. Authoritarian Socialism
Mixed Economies: All are now mixed!
Pure Command Model
Pure Market Model
Capitalism
Democratic Socialism
Authoritarian Socialism
Highly decentralized
Closest to pure market model
Lots of private ownership of factors of production
Some factors of production owned and controlled by government
Example: health care, education, energy resources
Highly centralized
Closest to pure command model
All factors of production owned and controlled by government