1. Every society must ask:
What should be produced?
How should they be produced?
Who will receive the goods and services that are produced?
Four Answers: An Economy can be:
Traditional
Market
Command
Mixed

2. Economic Systems: Who decides?
Traditional: Family-based customs
Market: The individual consumer
Command: Decided on by Government

3. Four Economic Systems or Mechanisms
Type
Who owns the means of production?
Who decides what will be produced and consumed?
Examples
Traditional
Varies: family, village, tribe, individual
Customs and norms
Subsistence agriculture, hunter/gatherer society
Market
Owned by individuals,
e.g, stockholding corporations, etc.
Consumer demand
Markets in U.S., e.g., retail, fast food
Command
Owned by government
Centralized planning, quotas and price controls
Former Soviet Union
Mixed
Government and individuals
Mixture of government planning and private initiative
People’s Republic of China,
Many sectors of U.S. economy

4. Adam Smith’s “Invisible Hand”
Adam Smith, The Wealth of Nations, 1776
“The businessman intends only his own gain; however, he is in this led by an invisible hand to promote an end which was not part of his intention. By pursuing his own interest, he frequently promotes that of society more effectually than when he really intends to promote it.”

5. The Road to Wealth: market oriented
Private property
Profit motive
Laws of supply and demand drive price changes
Government should stay out of the market except for preventing monopolies or regulating them
Providing public goods

6. Is it good to be selfish?

7. The Road to Wealth: Command-oriented
A. government should own and regulate factors of production
B. five year plans
C. Prices are regulated
D. Property is owned by the government

8. Traditional, Market, and Command (government) mechanisms
Select two economic phenomena: one micro and macro
Briefly state each one and then consider the traditional, market, and command mechanism that drive each one, and third, consider changes that are altering the dynamics among the three.
Example:
Micro: Three mechanisms and going to the movies
Micro: How can I pay for my college education?
Macro: Who should take care of the elderly?