Economic Systems SS6E5 A

3 Types of Economic Systems Traditional Command Market

Objectives Identify three questions that all economic systems must answer. Describe a traditional economy Describe a command economy Describe a market economy Explain how most economies have a mixed economy located on a continuum between a market and command economy

Vocabulary Break Economic System the system of production and distribution and consumption

Three Economic Questions What to produce? How to produce? For whom to produce?

Traditional A traditional economy is shaped largely by customs and religion. Economic questions are answered by what happened in the past. Traditional economies are mainly found in rural areas.

Traditional Economy What to produce? Just what is needed to take care of yourself and your family

Traditional Economy How to produce? How it was produced in the past

Traditional Economy For whom to produce? You product items for yourself and one’s household

Positives of a traditional economy Predictable Knowing what your job will be Knowing the way you will live

Problems with a traditional economy Lack many resources Only produce enough to live on

Command In a command economy the government answers the three basic economic question Sometimes called communism

Command Economy What to produce? the government determines what to produce

Command Economy How to produce? Government says how to produce

Command Economy For whom to produce? Citizens regardless of market demand

Positives of a command economy Because the government makes the decisions, people don’t have to worry about employment, housing, education, and healthcare

Problems with a command economy Consumers get low priority Little freedom of choice All resources are owned by the government

Market Economy In a market economy, buyers and sellers answer the three economic questions. All resources are privately owned

Market Economy What to produce? Producers and consumers decides Whatever the market demands that will produce a profit

Market Economy How to produce? By private producers

Market Economy For whom to produce? Consumers who demand the product and are willing to pay

Positives of a market economy People can start their own businesses People have choice

Problems with a market economy The desire for money may lead to poor quality of goods and services Business owners have to risk losing money

Vocabulary Break Continuum A line that goes into infinity or on and on in both directions

Continuum of Economies Pure Market Pure Command No Individual freedom Most Individual freedom Most economies fall in between a pure market and a pure command economy on the continuum