2 What is a system? A system is a way of doing something Economic systems allow countries to produce and distribute goods/services based on their goals
3 Traditional SystemThis type of economy relies on habit or custom to answer the 3 questions of allocation (what, for whom, how to produce)Everything is done just the way it was in the past, there is little room for change
4 Market SystemIn this type of economy, decisions are made by individual consumers and producers – they decide how to answer the 3 questions by using voluntary tradeAnother name for this system is capitalism
5 Command SystemIn this economy the central, or main, government decides how to answer the 3 questions for everyoneThe government tends to own most of the resources and controls labor by determining where people are allowed to work and how much they are paid
6 Types of Command Economies Socialism: refers to the idea that fair means are used to distribute wealth equally; the government owns key utilities but the people elect the government via democratic electionsCommunism: believes that all economic and political power rests in the hands of the government and that change can only come about through violent revolution. Governments are authoritarian – strict obedience to the government is mandated or severe punishments will follow
7 Mixed SystemThis type of economy is a combination of the market and command systemsMost economies today are mixed and have more market tendencies but some command tendencies as the government has some decision making power
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