1. Three Types of Economies
Chapter 13.3
Three Types of Economies

2. What is Economics?
Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources.
Technology
Land
Oil & fuel
Doctors

3. Factors of Production Economic Resources
Natural Resources – raw materials found in nature that are used to produce goods
Human Resources – people’s knowledge, efforts, and skills used in their work
Capital Resources – used to produce goods and services (buildings, materials, and equipment)
Entrepreneurial Resources - recognize the need for new goods or service
Scarcity – shortage of resources

4. Why Economic Systems?
Nations use economic systems to determine how to use their limited resources effectively.
Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life.
Different types of Economic Systems
Traditional Economy
Market Economy (free enterprise)
Command Economy
Mixed Economy

5. Traditional Economy Found in rural, under-developed countries–
Vanuatu
Pygmies of Congo
Eskimos & Indian tribes
Belarus
Customs govern the economic decisions that are made
Farming, hunting and gathering are done the same way as the generation before
Economic activities are centered around the family or ethnic unit
Men and women are given different economic roles and tasks
Advantages: people have specific roles; security in the way things are done
Disadvantages: Technology is not used; difficult to improve

6. Market Economy (Free Enterprise)
Also called a Free Market Economy or Free Enterprise Economy
Businesses and consumers decide what they will produce and purchase and in what quantities
Decisions are made according to law of supply & demand
Supply and demand of goods and services determine what is produced and the price that will be charged.
Advantage— competition to have the best products and services
Disadvantage—huge rift between wealthy and poor
Note: a true market economy does not exist.

7. Continued…………………………….
Competition in all aspects of economy (jobs, products, services, etc)
Profit seeking economy: “How much profit will I make on this good/service and is it worth the risk?”
Also called free enterprise and capitalism
FE=free to undertake economic activities
C=people make their own decisions on how to save capital and spend capital resources.

8. Command Economy
The government (or central authority) determines what, how, and for whom goods and services are produced.
Two types:
Strong Command – where government makes all decisions (communism – China, Cuba)
Moderate Command – where some form of private enterprise exists but the state owns major resources (socialism – France and Sweden)
Advantages
Guarantees equal standard of living for everyone
Less crime and poverty
Needs are provided for through the government
Disadvantages
Minimal choices
Fewer choices of items
No incentive to produce better product or engage in entrepreneurship
Also known as a Planned or Managed Economy

9. Mixed Economy Combination of a market and a command economy
Government takes care of people’s needs
Marketplace takes care of people’s wants.
Most nations have a mixed economy: United States, England, Australia
Advantage— balance of needs and wants met by government and in marketplace
Disadvantage— citizens have to pay taxes

10. Modern-day (mixed)Economies
The Economy of China:
Before 1980’s was a command economy
One party government w/control of major resources
’s the government moved toward a mixed economy when privately owned companies and overseas investment was allowed
The Economy of the U.S:
Considered a free enterprise economy
Individuals/businesses own factors of production
Businesses free to compete
Consumers free to buy/consume what they want
Little government intervention (there are some parts of the economy that are controlled by government)