Ch. 7, Economic Systems

Objectives List the three basic economic questions. List the three types of economic systems. Explain who answers the economic questions in each type of economy. Describe the three major features of a market economy. Explain why most economies are mixed.

Marketing Terms traditional economy command economy centrally planned economy market economy consumer economy capitalism capitalist economy free enterprise private enterprise free market economy mixed economy transition economy

#1 Who answers these questions for the U.S. economy? The Three Questions The problem of scarcity leads to the three economic questions What should we produce? How should we produce it? Who should get the products? #1 Who answers these questions for the U.S. economy?

What Should We Produce? or Cattle Corn

How Should We Produce It? or Computer Paper and Pencil

Who Should Get the Products? or Commoners Queen

Types of Economic Systems Economic systems are classified based on who answers the three questions Types of economic systems traditional command market

Traditional Economy In a traditional economy elders answer the economic questions based on traditions

Traditional Economy Traditional economies developed early in human history Following tradition is seen as a way of keeping the society safe and healthy There is pressure on traditional economies to become modern. Very few traditional economies exist. #2. What is tradition?

#3. How could government control of the economy affect your life? Command Economy In a command economy the national government makes all the economic decisions Main features government ownership of land and capital government control of labor government control of all economic activity #3. How could government control of the economy affect your life?

Command Economy A command economy is also called a centrally planned economy because the national government is also called the central government, and the central government plans all aspects of the economy Ideally, in a command economy everyone shares equally in the limited resources Socialist Economy

Market Economy In a market economy individuals answer the economic questions Market economies developed with a political philosophy called democracy democracy emphasizes individual rights market economies emphasize individual choice

Market Economy A market economy is also called a consumer economy because consumers have a great impact on this economy Three features of a market economy private property economic freedom market forces

Private Property Private property individuals have the right to buy and own land capital goods

How is this different from a command economy? Private Property Capitalism and capitalist economy are two more terms for a market economy because individuals can own capital How is this different from a command economy?

Economic Freedom Economic freedom individuals are free to make their own economic decisions to start any legal business to decide what career to choose

#4 How is this different from a command economy? Economic Freedom A market economy is also called free enterprise and private enterprise because enterprise is another term for business people are free to start enterprises private individuals (as opposed to the government) can start enterprises #4 How is this different from a command economy?

#5. How is this different from a command economy? Market Forces Market forces control a market economy. Free market economy is another term for market economy because market forces are “free” to influence the economy #5. How is this different from a command economy?

Command and Market Economies Features Command Market Political philosophy Communism Socialism Democracy Who answers the three economic questions? Central government Individuals Who controls the economy? Market forces Who owns the economic inputs?

Command and Market Economies Features Command Market Main features Government ownership of land and capital Government control of labor Government control of all economic activity Private property Economic freedom Market forces: supply and demand, profit motive, and competition

Command and Market Economies Features Command Market Other names Centrally planned economy Communist economy Socialist economy Welfare state Capitalism Capitalist economy Consumer economy Free enterprise Free market economy Private enterprise

Mixed Economies Most modern economies are mixed. Why? both market and command economies have flaws market economies are unstable command economies are too complicated to successfully plan and control For these reasons, there are no pure command or pure market economies

Mixed Economies In a mixed economy Four types of mixed economies both the government and individuals are involved in making economic decisions Four types of mixed economies mixed command economy transition economy mixed socialist economy mixed market economy

Mixed Command Economy Mixed command economy command economy with some market elements During much of the 20th century, China was a communist country with a pure command economy but the Chinese economy had difficulty meeting the needs of its people

China had over 1.3 billion people in 2006, more than any other country

Mixed Command Economy In 1978, the Chinese government started reforms to bring aspects of a market economy to China less government involvement in farming and industry individuals allowed to start and run small businesses

Transition Economy Transition economy changing from command to market The Soviet Union was one of the great command economies of the 20th century its economy had trouble providing for the needs of its citizens economic and other problems caused the Soviet Union to break up in 1991 it became 15 independent countries

Many of the newly independent countries have transition economies

Mixed Socialist Economy democratic political system economy that combines market and command elements France, Sweden, and other countries with a mixed socialist economy are called social democracies

Mixed Socialist Economy Market/Democratic elements citizens vote and have many rights citizens can start and run businesses Command/Socialist elements government collects a large percent of income as taxes, to use to ensure a decent standard of living for everyone government owns and operates major industries

Mixed Market Economy A mixed market economy is a market economy with some command elements The United States is a mixed market economy because government helps people in need through social security and welfare benefits regulates business collects income taxes, but not as much as in a social democracy

A Continuum Continuum a graph that shows two opposite qualities that blend in proportion from one end to the other a good way to look at modern economies

A Continuum A continuum of economic systems has a pure command economy at the left total government control a pure market economy at the right individual and market forces totally in control A country’s position on the continuum depends on the amount of government or individual control

Continuum of Economic Systems Pure Command Pure Market Cuba China France Sweden United States Legend Amount of governmental control Amount of individual control Where on the continuum do the following countries belong? Cuba, China, France, Sweden, United States

Review What are the three economic questions? What are the three types of economies? What are three features of a market economy? How is a command economy different from a market economy? Why are most economies mixed?

Glossary capitalism. Another term for market economy. Back capitalism. Another term for market economy. capitalist economy. Another term for market economy. centrally planned economy. Economy in which the national government makes all the economic decisions; also called command economy.

Glossary Back command economy. Economy in which the national government makes all the economic decisions; also called centrally planned economy. consumer economy. Another term for market economy because consumers have a great influence on this type of economy through what they buy and how much they buy.

Glossary free enterprise. Another term for market economy. Back free enterprise. Another term for market economy. free market economy. Another term for market economy.

Glossary Back market economy. Economy in which individuals answer the economic questions and market forces are allowed to operate; also called capitalism, capitalist economy, consumer economy, free enterprise, free market economy, and private enterprise.

Glossary Back mixed economy. Economy in which both the government and individuals are involved in making economic decisions. private enterprise. Another term for market economy.

Glossary Back traditional economy. Economy in which the economic questions are answered by the elders based on the society’s traditions. transition economy. Economy that is changing from command to a more market economy.