1. Economic Systems
Economics
Mr. Rosenstock
San Fernando High School

2. Vocabulary:
Resource
A resource is a source or supply from which benefit is produced
Resources are materials, energy, services, staff, knowledge, or other assets that are transformed to produce benefit and in the process may be consumed or made unavailable
Benefits of resource utilization may include: increased wealth, meeting needs or wants, proper functioning of a system, or enhanced well being

3. Vocabulary:
Scarcity:
Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources
It states that society has insufficient productive resources to fulfill all human wants and needs
Economy / Economic System:
An organized way of providing for the wants and needs of a society’s people

4. Economic Systems
All societies have to deal with scarcity
All societies have an economy or economic system
There are three main types of economic systems:
Traditional
Command
Market

5. Traditional Economy

6. A traditional economy is an original economic system in which traditions, customs, and beliefs shape the goods and the services the economy produces, as well as the rules and manner of their distribution
In a society with a traditional economy, the way resources are allocated, and how wants and needs are satisfied stem from culture, habit and ritual
Traditional economies are found throughout rural areas of Africa, Europe, North and South America and Asia.
Cultures with traditional economies include various tribes in Africa, the Inuit (Northern Canada and Alaska), communities in India, Bangladesh, the Amish in parts of Ohio and Pennsylvania., etc.
In these cultures, people have specific roles to perform: some are hunters or farmers, others are weavers, etc. These roles are passed down from parent to child

7. Inuit fishing in a weir

8. The economy is family and community based
Technology is basic and concerned mostly with agriculture
“Subsistence” farming – little surplus is produced
Bartering is the primary method of exchange of goods and services
Communities with traditional economies don’t participate in market systems (like stock markets), so they don’t trade with global economies
Advantages: Everyone knows what role/ job they have, so they know what to produce
Everyone knows how to produce/ do their work, because they were taught by parents/ family
Everyone knows for whom they produce - this is part of custom and ritual
Members take care of each other in a traditional economy
Disadvantages: New ideas are usually discouraged
Members who defy the community are discouraged/ threaten the way of life/ often forced out of community

9. An Amish Barn Raising

10. Command Economy
Fidel Castro in a sugar cane
field (1962)

11. Command economy, also called a planned economy, an economic system in which the means of production (the facilities and resources for making goods) are often publicly owned by the people or the state/ country and economic activity is planned; the government controls and regulates production, distribution, prices and sets taxes
In a command or planned economy there is a government bureaucracy dedicated to planning out production goals for everything from agricultural products and textiles, to automobiles, washing machines and liquor
Planned economies regulate distribution of goods and services – who gets what, how much and when
Planned economies often protect certain industries from competition in order to keep prices for those goods stable. These protections are called subsidies: money that is paid by a government to keep the price of a good or service low or to help an industry function or grow

12. Advantages: The main advantage is that big changes can be made quickly in a command economy since the government controls production and resources
An example would be China which went from a rural to a leading industrial nation in a few decades by emphasizing heavy industry and industrial growth
Citizens in a command/ planned economy, including the very young, old and disabled are cared for by the state with government run healthcare and subsidized housing
Resources can be directed to specific needs more quickly because of government control
People don’t usually lose their jobs in a command economy

13. Disadvantages: Command economies are slow to make minor adjustments because often there is a bureaucracy that makes the decisions (not local business or people)
May not meet the demands of consumers very well because decisions about what to produce and how much are determined by government bureaucracy rather than individuals or business
There may be less choices for consumers in a command economy
People may lack incentive to work well because their jobs are more guaranteed than in a market economy and wages are not based on skill or productivity

14. Market Economy (Capitalism)

15. A market economy is an economy in which decisions regarding investment, production, and distribution are based on market determined supply and demand, and prices of goods and services are determined in a free price system
In a market economy individual people and businesses make the decisions about what, how and for whom to produce
Quantity of goods produced fluctuate with consumer demand and resources available
Prices in a free market are determined by businesses, consumer demand and available supply of goods and services
All current countries are run mostly with a market economy
Advantages: Individual choice is supposed to be the main feature of a market economy.
Market economies usually adjust to small changes well

16. Governments don’t interfere with the economy much
Greater variety of goods and services often available
People supposed to earn what they are able to command
Individuals supposed to be more important in a market economy
Disadvantages: Market economies often don’t meet the needs of everyone
The young, old and sick not always cared for in a market economy
Workers and businesses face uncertainty over jobs, income/ profits and whether they will stay in business
Finally when some individuals and companies/ corporations become too large and powerful, they usually buy out their competition. This causes prices for goods and services to rise from lack of competition and makes the “market” less free, hurting the public

17. In truth, no national economy is pure
In truth, no national economy is pure. They are in fact a mix of economic types…like a planned economy mixed with some market economy (or vice-versa)

18. Mixed Economy
Mixed economy, is an economic system of resource allocation, commerce, and trade in which free markets coexist with government intervention
A mixed economy may emerge when a government intervenes to disrupt free markets by introducing state- owned enterprises (such as public health or education systems), regulations, subsidies, tariffs, and taxes

19. Advantages: mixing elements of a planned economy into a market economy can do the following:
By setting taxes ( like sales taxes or income taxes) to create income for the government - governments need money to function and perform their duties
By giving subsidies to certain businesses, that money promotes and protects the businesses or industries that receive the money and allows them to grow or keep prices down
By placing tariffs (a type of tax on foreign goods) it protects goods made domestically within the country from foreign competition
By introducing state run enterprises (like public education or Social Security or healthcare) it makes social services available to more citizens and more equal
By placing regulations (rules/limits) on aspects of business, the government ensures consumers and their money are protected from harmful practices, or keeps the market competitive and free