1. ECONOMIC SYSTEMS

2. ALL economic systems
Organized ways of providing for wants and needs of a country’s people
Answer the 3 basic economic questions
Have to deal with SCARCITY of resources
Have trade-offs
Have opportunity costs

3. Four Economic Systems
Traditional
Market
Command
Mixed

4. Traditional Economic System
Economic questions answered based on ritual, habit, or custom
Individuals NOT free to decide
Customs of elders and ancestors decide
Examples: indigenous tribes in Africa, Australia, New Guinea, north Canada
Advantages?
Disadvantages?

5. Market Economic Systems
What, how, for whom questions answered
By individuals and firms in marketplace
Individuals are free to make decisions
Producers make goods that consumers like
Individuals’ incomes determine division of output (who gets what, how much)
Private ownership and control of resources
People depend on voluntary exchange

6. Considerations about Market Economies
They CANNOT guarantee economic security and fairness
no equal distribution of $
They depend on entrepreneurship
Entrepreneurs depend on government patents
Unlike traditional economies, market economies adjust to consumer demands
They provide efficient use of resources which leads to economic growth

7. Command Economic Systems
3 economic decisions based on governmental regulation
Government owns means of production
Factories, utilities, transportation, etc.
Little or no individual freedom or choice
Compared to market economy
Example: communist North Korea, Cuba

8. Considerations about Command Economies
Can change direction in short time
Ex. USSR under Stalin
Provide economic security services to people
Ex. Housing, jobs, food, healthcare
Modern command economies have failed
MAIN reason: government decision-making led to shortages and inefficiency
LESS freedom and LESS efficiency than market economies

9. Communist Command Economies
THEN: COLD WAR
Afghanistan, Albania, Angola, Benin, Bulgaria, Cambodia, Congo, Czechoslovakia, East Germany, Ethiopia, Hungary, Mongolia, Mozambique, Poland, Romania, Somalia, South Yemen, Soviet Union, and Yugoslavia
NOW
*China
Cuba
Laos
North Korea
*Vietnam
*”Hybrid” countries: Communist government, increasingly market economy

10. Mixed Economic System
MOST nations in the world today have mixed economies
USA is a mixed economy
Government command elements?