Economic Systems and Government

Introduction In any type of economic systems, three basic questions must be answered: In any type of economic systems, three basic questions must be answered: 1. What will be produced? 2. How will it be produced? 3. For whom will it be produced? We classify economic systems according to how they answer these questions. We classify economic systems according to how they answer these questions.

Traditional Economy “That’s The Way We’ve Always Done It Ville” Economic questions answered according to custom & tradition Economic questions answered according to custom & tradition Production is done the way it has always been done. Production is done the way it has always been done. Examples  Rural areas of South America & Africa Examples  Rural areas of South America & Africa

Command Economy “We Do What We’re Told Ville” Economic questions answered according to government direction Economic questions answered according to government direction Government controls all economic activity Government controls all economic activity Example  Communist North Korea Example  Communist North Korea

Market Economy Economic questions answered according to wishes of buyers & sellers Economic questions answered according to wishes of buyers & sellers Individual choice determines progress of market Individual choice determines progress of market Example  United States Example  United States

Question… Is the United States a PURE Market Economy? Does it operate without any type of government intervention?

Mixed Economy No system in the world is PURE No system in the world is PURE Mixed Economy  Economic system that incorporates elements of different systems (usually command and market) Mixed Economy  Economic system that incorporates elements of different systems (usually command and market) United States Example: United States Example: Market  Privately owned malls, restaurants, and even Market  Privately owned malls, restaurants, and even entrepreneurship entrepreneurship Command  Minimum wage, labor laws Command  Minimum wage, labor laws Traditional  “blue laws” No Sunday alcohol sales in some Traditional  “blue laws” No Sunday alcohol sales in some areas areas