1. What are the 3 main questions???

2. What are the 3 main questions???
What goods/ services should be produced?
2. How should they be produced?
3. For whom should they be produced?

3. Types of Economic Systems
There are 4 systems that differ based on how they answer the 3 basic questions (what, how, for whom to produce)
Trdn
Cmnd
Mrk
Mxd
The traditional commander made his mark with his mix

4. Traditional Economy: system in which economic decisions are based on customs & beliefs that have been handed down from generation to generation
“Things are done the way they always have been done”
Economic decisions are based on customs & beliefs handed from generation to generation
If your father was a fisherman, you would be a fisherman, your son would be a fisherman, etc…

5. Traditional Economy… ADVANTAGES DISADVANTAGES
You know what’s expected of you
Family/ community ties are very strong
DISADVANTAGES
Change is discouraged & even punished
Choices among consumer goods are rare
Rare increase in the level of material well-being
Things tend to stay the same
In Australia, Aboriginal tribes/ civilizations are traditional economies

6. Command Economy: system in which the gov’t controls the factors of production & makes all decisions about their use
Also known as a “controlled system”
Decisions in gov’t are made by leaders only
One leader, small group of leaders, group of central planners
Leaders control all facets of the factors of production (LALAgsCAP’EN)
You get paid what your leader decides & you may not be able to choose your own career

7. Command Economy… DISADVANTAGES
Lack of incentives to work hard since gov’t set workers’ salaries
Little/ no room of “moving up”
Lack of consumer choices
North Korea is a command economy – all economic activity is gov’t planned

8. Market Economy: system in which individuals own the factors of production & make economic decisions through free interaction while looking out for their own & their families’ best interests
Also known as “capitalism”
Opposite of a command economy
Limited gov’t makes it possible for individuals to make their own economic decisions
Individuals control all facets of production (LALAgsCAP’EN)
These decisions are guided by market prices

9. Market Economy…. MARKETS:
Market: process of freely exchanging goods & services between buyers & sellers
Voluntary exchange
Worldwide – oil
Local – babysitting/ snow shoveling
High priced goods = relatively scarce product
Low priced goods = relatively plentiful product
*Prices can fluctuate between high & low – this results in an incentive-driven system*

10. Market Economy… ADVANTAGES DISADVANTAGES
Freedoms: choose career, spend freely, own property, take risks, earn profits
Competition allows for a HUGE array of goods & services to pick from
DISADVANTAGES
Too old/ too young/ too sick are pushed
out of the system & rely on charity or hand-outs

11. Market Economy…Circular Flow of Income/ Output
Circular flow of income & output: economic model that pictures income as flowing continuously between businesses & consumers
The flow of resources, goods & services, & income is circular

12. Circular flow of income & output
Dollars flow from businesses to individuals & back to businesses
Factors of production flow from individuals to businesses, which use them to produce goods & services that flow back to the individuals

13. Mixed Economy: system combining characteristics of more than one type of economy (market & command)
Most countries in the world have a mixed economy
Private ownership of property & individual decision making are combined with gov’t intervention & regulations
United States
most decisions are made by individuals within the market
BUT federal, state & local gov’ts make laws protecting private property & regulating areas of business
I own my own business & control everything BUT need to follow business regulations

14. How can you (we) remember the following:
Your Turn….
Come up with a memory device….
How can you (we) remember the following:
4 types of systems: traditional, command, market, mixed
We’ll vote on the best…. That person gets 5 smackers!!!

15. Circular flow of income & output
Dollars flow from businesses to individuals & back to businesses
Factors of production flow from individuals to businesses, which use them to produce goods & services that flow back to the individuals

16. Major Economic Systems (you’ll see this again… do it right!)
Type of system
Who makes decisions based on the basic 3 questions?
Advantages
Disadvantages
Traditional
Command
Market
Mixed