1. Mr. Miller American Government and Economics Economic Systems

2. What is an Economic System ? The structure by which a nation uses it’s resources to satisfy the wants and needs of it’s people

3. How does a nation satisfy wants and needs? By answering three basic questions. 1. What to produce? 2. How to produce it? 3. For whom will it be produced?

4. Nations answer these questions differently, creating 3 different types of economies: 1. Traditional 2. Market (free-enterprise) 3. Command 4. Transitional

5. Traditional Economies Based on tradition, culture, custom, and religion Rarest type of economy in use today Some traditional economies still thrive in small communities throughout Asia, the Middle East, and Africa.

6. Market Economy Individuals own the Four Factors of Production. 1. Land 2. Labor 3. Capital 4. Entrepreneurial Ability Individuals answer the 3 basic economic questions Government has little involvement in the economy…..a.k.a. “Laissez-Faire” (“Let it be”)

7. Market system cont… Since individuals control what to produce, how to produce, and for whom to produce, they have more motivation to do well for themselves. This is known as having Self-Interest If everyone tries to do what’s best for themselves, then everyone is contributing to the overall economy

8. This concept was proposed by Adam Smith, and is known as “The Invisible Hand Theory” Everyone working for their own self- interest “pushes” (like a hand) the economy to grow. Examples of Market Economies Today: U.S.A. Japan, Germany, Canada, England, Mexico

9. Command Economy The individual has little or no influence in the economy The government answers the 3 basic economic questions for you. The government controls the economy It sets prices, distributes resources, and controls the factors of production The government decides what to make, who gets what, and how to make it…..

10. Examples of Command Economies Cuba, Vietnam, North Korea

11. Transitional Economies Economies that are moving from Command to market economic systems Not an easy process….takes large amounts of Time, Skills, efforts, and Political Unity.

12. What problems could occur when transitioning economic systems? What problems could occur if your country decided to transition from: Public property to Private Property? Government controlled prices to market established prices? Government allocating resources to self-interest?

13. Questions… 1. Which type of economic system do you think would best satisfy the wants and needs of a nation? Why? 2. Why are traditional economies unpopular as economic systems? 3. Which type of economic system seems the most “fair”? Why?