Economic Systems
Economic Systems An economic system describes how a country’s economy is organized. An economic system must answer three (3) basic questions…
Economic Systems a. WHAT (goods/services) TO PRODUCE? b. HOW TO PRODUCE? c. FOR WHOM TO PRODUCE (who gets the G/S)? **The way a society answers these questions determines its economic system.
Traditional Economy – basic definition Are based on customs + beliefs People will make what they always have made Do the same work their parents did Use bartering
Traditional Economy – who answers 3 basic questions customs + traditions (previous generations) people grow & make things the same way that their ancestors did people in the village who need them
Traditional Economy - Examples villages in Africa and South America Inuit tribes in Canada Aborigines of Australia
Command System - definition government makes all economic decisions & owns most of the property Set prices of goods/services Set the wages of workers This system has not been very successful - countries are abandoning it.
Command Economy – who answers the 3 basic questions government makes all economic decisions government decides how to make goods/services whomever the government decides to give them to
Command System - Examples countries with communist governments (or dictators) have command economies Examples: Cuba former Soviet Union North Korea
Market Economy – basic definition economic decisions are based on what the people want! And how much they’re willing to pay! economic decisions are based on free enterprise (competition between companies)
Market Economy – who answers the 3 basic questions businesses base decisions on supply and demand and free enterprise (PRICE) businesses decide how to produce goods consumers
Market Economy - examples There are no truly pure market economies. **USA is the closest to this**
Mixed Economy – basic definition Market + Command = Mixed Businesses own most resources and determine what and how to produce, but the government regulates certain industries.
Mixed Economy – 3 basic questions Businesses businesses, but the government regulates certain industries consumers
Mixed Economy - examples Most democratic countries fall in this category (there are no truly pure market or command economies). Examples: USA Brazil Mexico Canada United Kingdom