Economic Systems Compare different types of economic systems: traditional, free enterprise, command and mixed.

Why Economic Systems? Nations use economic systems to determine how to use their limited resources effectively. Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life. Different types of Economic Systems Traditional Economy Market Economy (free enterprise & capitalists) Command Economy Mixed Economy

Market Economy (Free Enterprise) Supply and demand of goods and services determine what is produced and the price that will be charged. Advantage—competition to have the best products and services Disadvantage—huge rift between wealthy and poor Note: a true market economy does not exist. Also called a Free Market Economy or Free Enterprise Economy. Also called Capitalist Economy Businesses and consumers decide what they will produce and purchase and in what quantities Decisions are made according to law of supply & demand Private ownership Private gains Freedom of choice Freedom of occupational choice Goods and products reach the hands which have higher purchasing power

Command Economy Advantages Disadvantages The government (or central authority) determines what, how, and for whom goods and services are produced. Regulated and managed by government. Freedom of choice for producers and consumers is curbed to what a society can produce for all. Determines pattern,level ,technology and distribution of total production Two types: Strong Command – where government makes all decisions (Communist– China, Cuba) Moderate Command – where some form of private enterprise exists but the state owns major resources (socialism – France and Sweden) Advantages Guarantees equal standard of living for everyone Less crime and poverty Needs are provided for through the government Disadvantages Minimal choices Fewer choices of items No incentive to produce better product or engage in entrepreneurship Also known as a Planned or Managed Economy

Mixed Economy Combination of a market and a command economy Government takes of people’s needs Marketplace takes care of people’s wants. The one which has public sector and private sector Most nations have a mixed economy: United States, England, Australia Advantage—balance of needs and wants met by government and in marketplace