Introduction to Economic Systems Personal Finance Mr. Tumino

Discussion… How would you define economics? What is an economic system? How does economics impact you?

Comparative Economics Systems The major economic systems are traditional economy, market economy, command economy and mixed economy. There are also countries that are said to have developing economies, moving from a traditional to a market economy.

Definitions Factors of production: –Those things necessary to produce goods and services. »Land »Labor »Capital (money, buildings, equipment, etc.) »Management

Definitions Traditional economy: –An economic system in which the factors of production are settled by rules accepted as good and correct –Normally used to describe economic systems that pertain in societies with extensive subsistence agriculture –Used by members of industrialized societies to describe societies deemed "underdeveloped"

Definitions Market economy: –An economy in which the prices of goods and services are determined in a free price system. –A system in which buyers and sellers exchange on the basis of supply and demand. –Also known as a capitalist economy.

Market Economy

Definitions Command economy: –An economic system in which decisions regarding the factors of production are made by government leaders.

Command Economy

Command Economies Two types of command economies: –Communist—strict government control of the entire society

Command Economies – Socialist—three main goals of this type of economy: An equitable distribution of wealth and economic opportunity Society’s control, through its government, makes decisions about public goods. Public ownership of services and factories that are essential.

Definitions Mixed economy: –A combination of market, command, or traditional economy. –A system in which free enterprise is affected by government regulations.

Mixed Economy

Economic Decisions All economic systems must make three basic economic decisions: – What and how many goods and services should be produced – How should they be produced – Who gets the goods and services that are produced

Economic Decision Making These decisions are made differently in the three major economic systems: – Traditional—habit and custom determine the rules. – Market—this economy is based on free enterprise, the idea that private individuals or groups have the right to own property or businesses and make a profit with only limited government interference. – Command—the government controls the economy is this system.