1. Economic Systems

2. How Does An Economy Work?
Nations must answer 3 basic Economic question:
What goods and services should be produced?
How should the goods and services be produced?
For who should the goods and services be produced?
The way a nation answers these questions defines their economy.

3. Types of Economic Systems
All economic systems fall into one of two broad categories:
Market (or Capitalist) System
Command (or Planned) System
No economy can be purely market or purely command
Elements of both economies are found in all systems this makes all economies mixed

4. A Pure Market Economy No government involvement in economic decisions
The government lets the people answer the three basic economic questions
What? Customers decide through their purchases
How? This is left up to the individual business –BUT- a business must be profitable
Who? People who have money can buy more – this encourages hard work and investments

5. A Pure Command Economy
The Government controls the factors of production and makes all the decisions The government is responsible for answering the
three economic questions
What? One person ( a dictator) or a group of government officials (central planning committee) decide what is to be produced
How? The government owns all the factors of production and makes all the decisions about production
Who? The government decide who receives what is produced in the economy

6. Mixed Economies
Some government involvement through mandatory laws and regulations that businesses follow
Labor Laws, Minimum Wage
The government provides social programs for those who need help
Medicare, welfare
All economies are mixed they are classified based on how much the government is involved in the process

7. Continuum of Economic Systems
Market Economy
Capitalism
On the far right
Command Economy
Communism
On the far left
Socialism
Left of center but right of communism

8. Capitalism
An economic system characterized by private ownership of businesses and marketplace competition
The government is concerned about its people and takes care of those who cannot care for themselves
The political system is a democracy with leaders elected by the people
The United States and Japan are examples of a Capitalist Economy

9. Socialism
Increased government involvement in people’s lives and the economy
The main goal is to keep prices low for all people and to provide employment for many
The government runs key industries and makes economic decisions
More social services for all and free or low cost medical care
Canada, Germany, Sweden, Australia and Great Britain are all examples of socialist economies

10. Communism The government runs everything (Totalitarian government)
Only one political party, the Communist party, runs the government
All people able to work are assigned jobs – there is virtually no unemployment
The government assigns housing, schools, and occupations
There is little to no economic freedom
Cuba, North Korea, and China are examples

11. Economies In Transition
The breakup of the Soviet Union is the best example of a country changing from a Command Economy to a Market Economy
State owned industries have been privatized (government owned businesses are sold to private citizens)
Today even socialist countries are selling some of their government owned businesses to individuals