2 All Economic Systems Must Consider the Following Questions: THE THREE BIG ECONOMIC QUESTIONS1. What goods and services to produce?2. How will they produce them?3. For whom to produceEach economic system answers these questions in a DIFFERENT WAY.
3 Types of Economic Systems There are 3 basic types of economic systems.-TRADITIONAL-COMMAND-MARKET
4 1. Traditional EconomyEconomic questions are answered by habits and customs (the way it has always been done)Children work the same jobs parents worked, often farming or hunter/gathererFear Change!Ex. Eskimos, the Amish,Tribal Economies
5 2. Command Economy The government answers the basic economic questions Advantages: able to act quickly in emergencies, provide for all people equallyDisadvantages: Inefficient, no incentive to work hard or be creativeEx. Communist Countries (China, Vietnam, North Korea, formerSoviet Union, Cuba)
6 3. Free Market EconomyEconomic questions are answered by individual buyers and sellers interacting.Supply and demand influence economyPeople act out of self interest; motive for profit (money) drives the economy.Also known as FREE ENTERPRISE or CAPITALISMEx. The United States, WesternEurope, Japan
7 I lied!I said there were 3 types of economic systems, but there is a 4th!Mixed Economy: No economy is pure market, pure command or pure traditional, elements of each appear in all economies, some have more elements of one economy than another.Market Mixed CommandUSA Great Britain China
8 American Mixed Economy While the United States is mostly a free market economy, it does have elements of a command economy.
9 Features of American Free Market Economy Economic Freedom: individuals have the right to chooseCompetition: more than one producer of good/services insures choicePrivate Property: individuals have the right to own their own property, including business
10 Features of American Free Market Economy (cont) Self-Interest: individuals makedecisions based on what is best for themVoluntary Exchange: individuals may freely buy and sell goodsProfit Motive: individuals are driven by a desire to profit (make money)
11 Features of American Command Economy Government regulation of some business practicesEx. Wages, labor hours,safety practice.Government limits certain choicesEx. Cannot buy or produce certain goods/servicesGovernment provides aid to the needyEx. Medicare, Medicaid, welfare
12 Tradition???Some economic roles are passed on from generation to generation. You may not choose to do what other people in your family do but many people will!
13 Summary What to produce? How to produce? For Whom to produce? Traditional Determined by custom. Passed on fromgeneration to generation. Self sufficient.Command All questions are answered by government officials.Market The interaction of buyers and sellers d determines the answers for the three economic questions.
14 So what works the best??? Does economic freedom lead to productivity? Do we need the government to help us to produce?IS AMERICA #1