Every society has an economic system in which people make and distribute goods and services.
WHAT IS AN ECONOMIC SYSTEM? An economic system describes how a society determines what to produce, how to produce, and for whom to distribute goods and services.
5 What will be produced? How will it be produced? For whom will it be produced? In any type of economic systems 3 basic questions must be answered.
THE 3 ECONOMIC SYSTEMS Traditional Command Market
TRADITIONAL ECONOMIC SYSTEM Traditional economic system is a community based system in which all factors of production rely on customs, and beliefs. There is very little change. Trade is usually very limited. Today traditional economies are not common.
What? Tradition, customs, and beliefs decide what goods and services will be produced. How? Tradition, customs, and beliefs decide how goods and services will be produced. For whom? For people who live in the community or the village. TRADITIONAL ECONOMIC SYSTEM
COMMAND ECONOMIC SYSTEM In a command economy the factors of production is owned and controlled by the government.
COMMAND ECONOMIC SYSTEM. What? The government decides what products are needed. How? Since the government owns all means of production, it decides how goods and services will be produced. For whom? The government decides who will get what is produced.
MARKET ECONOMIC SYSTEM In a market economic system the factors of production is controlled by individuals or corporations.
MARKET ECONOMIC SYSTEM What? Consumers and producers decide what should be produced. How? Consumers and producers decide how to produce. For whom? Consumers.
IMPORTANT! Traditional economies only make up a small part of a country’s economy. There are NO PURE Market economies in the world There are NO PURE Command economies in the world. All economies in the world have aspects of both command and market.
THEREFORE… All modern economies in the world are MIXED economies. But the mix is different in every nation.
PURE MARKET 100% PURE COMMAND 0% Russia 50% Germany 71% United Kingdom 74% In which country do you think it would be the easiest to start a business? USA 77%
IDENTIFY THE ECONOMIC SYSTEM The Inuit of northern Canada serve as a prime example of a ___________economy. For thousands of years, the Inuit parents have taught their children the survival skills needed to survive in the Arctic Circle's severe climate. The children are taught to fish, hunt, and make effective tools. Once learned, these skills are passed down to the next generation. When the Inuit hunt, it is traditional for them to distribute the harvest with other families in the community.
REVIEW True of False. The economies of Germany, Russia, and the United Kingdom have aspects of both command and the market economic systems. Explain.
REVIEW An entrepreneur is someone who starts their own business. In a command economy entrepreneurs rarely exist. Why?
REVIEW Which economic system is the MOST centralized?
REVIEW This picture BEST represents a _______ economic system.