2 The Big Ideas!Economic systems are different ways that people use resources to make and exchange goods and services.Literacy rate, life expectancy, and Gross Domestic Product measure economic development.Some countries have a wide mix of economic activities, while others may have only one or two main economic activities.Countries of the world are grouped based on their level of economic development.Divided into 2 categoriesDeveloping nationsDeveloped nations.
3 Economic SystemsAn economic system describes how a country’s economy is organizedBecause of the problem of scarcity, every country needs a system to determine how to use its productive resourcesAn economic system must answer 3 basic questions…but first, a vocabulary break.
4 Vocabulary BreakEconomic System: The system of production, distribution, and consumption of goods and servicesScarcity: The limited supply or availability of a resource
5 3 Questions for Economic Systems WHAT TO PRODUCE? (What kinds of goods and services should be produced?)HOW TO PRODUCE? (What productive resources are used to produce goods and services?)FOR WHOM TO PRODUCE? (Who gets to have the goods and services?)The way a society answers these questions determines its economic system.
7 Four Types of Economic Systems: 1. Traditional Economy2. Command Economy3. Market Economy4. Mixed Economy (Market + Command)
8 Traditional EconomyThe oldest economic system in the world; not used much todayA system in which people grow their own food and make their own goodsAn economic system in which economic decisions are based on customs and beliefsPeople will make what they always made & will do the same work their parents didExchange of goods is done through Bartering: trading without using moneyFound in rural and remote communities
9 Traditional Economy Who decides what to produce? People follow their customs and make what their ancestors madeWho decides how to produce goods & services?People grow & make things the same way that their ancestors didWho are the goods & services produced for?People in the village who need them
10 Traditional Economy Examples: Villages in Africa and South America; the Inuit tribes in Canada; Used recently in Argentina during difficult economic times
11 Command SystemThe government owns most of the resources and businesses that produce goods and services & owns most of the propertyThe government decides what to produce, how much to produce, and what the prices will beGovernments also determines the wages of workersAlso called a planned economyThis system has not been very successful & more and more countries are abandoning it
12 Command Economy Who decides what to produce? Government makes all economic decisionsWho decides how to produce goods and services?Government decides how to make goods/servicesWho are the goods and services produced for?Whoever the government decides to give them to
13 Command SystemCountries with communist governments have Command economiesFound in North Korea and Cuba; the communist governments of these nations own and control most businesses*Germany and Russia have moved away from having a Command economy since Now they have a Mixed economy.
14 Market EconomyAn economic system in which economic decisions are guided by the changes in prices that occur as individual buyers and sellers interact in the market placeA system based on private ownership, free trade, and competitionMost of the resources are owned by private citizensSometimes called capitalism or a demand economyEconomic decisions are based on Free Enterprise (competition between companies)Important economic questions are not answered by government but by individualsGovernment does not tell a business what goods to produce or what price to chargeIndividuals and businesses are free to buy and sell what they wishPrices are determined by the supply and demand for goodsThe most common economic system used in the world today
15 Market Economy Who decides what to produce? Businesses base decisions on supply and demand and free enterprise (PRICE)Who decides how to produce goods and services?Businesses decide how to produce goodsWho are the goods and services produced for?consumers
16 Market EconomyThere are no truly pure Market economies, but the United States is close.
17 Mixed Economy Market + Command = Mixed There are no pure command or market economies. To some degree, all modern economies exhibit characteristics of both systems and are often referred to as mixed economies.Most economies are closer to one type of economic system than anotherBusinesses own most resources and determine what and how to produce, but the Government regulates certain industries
18 Mixed Economy Who decides what to produce? businessesWho decides how to produce goods and services?Businesses, but the government regulates certain industriesWho are the goods and services produced for?consumers
19 Mixed EconomyMost democratic countries fall in this category (there are no truly pure Market or Command economies).A combination of command and market economies which provides goods and servicesThe government may own some industries, while others belong to private ownersExamples: Brazil, Mexico, Canada, UK, etc.
20 Which Economic System Is Best? Let’s do some research and find out!