Economic Systems Market, Command and Traditional

How Systems are Decided Each country determines how their economies will run by asking the following questions: Who will decide how resources are used? How much will the government be involved in these decisions? What are the goals for our country? What are the traditions in our country?

The 4 Main Questions What will be produced? How will it be produced? How much will be produced? Who will get what is produced?

Production Possibilities Curves Graph comparing the uses for resources Often shows the domestic vs. military uses or guns v. butter Can compare similar products- their graphs are straight

The 3 main types of economy Traditional- in this economy the decisions on how to use your resources are based on how they have always been used (often agricultural/ farming societies). Command- the government decides how the country’s resources will be used (Communist or Centrally Planned). Market- individuals (entrepreneurs) create business and decide how to use available resources (Capitalist).

Traditional Economies Decisions are based on Traditions Often referred to as “Third World” Change is very slow Roles and jobs are often assigned Everyone knows their role and future Very stable

Command Economies also known as Communist Government (Central Planners) makes all economic decisions Decisions are based on what is good for the society, not the individual Changes come quickly, yet day to day planning can be slow Goal is equality- everyone’s needs (not wants) are met Individuals follow the decisions of planners Offers little incentive for innovation government individuals

Free Markets also known as Capitalism Individuals decide what is bought and sold in markets (the society as a whole decides based on their wants and needs) Supply and demand regulate the market People are free to chose careers Private property is a key factor (individual ownership) Competition is needed in order to keep prices fair There is a large gap between rich and poor Workers are often exploited

Founding Fathers Adam Smith The Wealth of Nations Believes individuals can determine their own wants and needs Markets- Capitalism Just Price Self- regulation Competition Consumer Society Karl Marx Das Capital and The Communist Manifesto Believed the rich and powerful exploit the poor Communism Equality Unions and worker owned The Russian Experiment

Mixed Economies Using parts of all 3 economic systems to create a solid economy Reasons for Government intervention - Business Cycles- Markets have natural recessions and inflation - Inform consumers- to keep people safe from big business - Competition- If there isn’t any then the prices won’t be fair - Safety Nets for people- incase a business fails or recession occurs

Things to consider when choosing an economic system Freedom vs. Equality Tradition vs. Change Government involvement? Failure and Crime Taxes and their Use Innovation and work incentives