1. Economic Systems

2. All Economic Systems seek to answer the three basic economic questions
1) What to produce?
2) How to produce?
3) For whom to produce?

3. Traditional Economies
Basic economic questions answered by what has been done in the past
Traditions are maintained
Ritual, Habit, and Custom

4. Traditional economies
Individual roles and choices are defined by the customs of elders and ancestors
These economies are usually based in societies of hunter/gatherers
Sharing is a big part of these economies

5. Examples of Traditional economies
Australian aborigines

6. The Mbuti in Central Africa

7. The Inuit of Northern Canada

8. How do Traditional economies answer the three basic questions?
1) What to produce? Whatever ritual, habit or custom dictates
2) How to produce? However ritual, habit or custom dictate
3) For whom to produce? For whomever ritual, habit or custom dictate

9. Advantages of Traditional economy
There is little to no uncertainty
Everyone knows what role to play
Life is generally stable, predictable, and continuous

10. Disadvantages of Traditional economies
Tend to discourage new ideas and new ways of doing things
Lack of progress lowers standard of living

11. Command Economies
Basic economic questions answered by the government (central authority)

12. Examples of Command economies
Only one command economy left – North Korea
All others have mixed in market economy with their command structure (China)

13. North Korea

14. How do Command economies answer the basic economic questions?
1) What to produce? Whatever the government says to produce
2) How to produce? However the government tells you to produce
3) For whom to produce? For whomever the government tells you to produce (ideally the entire society)

15. Advantages of Command economy
Because the government has total control over production and its factors, these economies can change rapidly.
Whatever is needed most will be produced.
There is no uncertainty (people are told when and how to work)
Free education, health care, and other public services

16. Disadvantages of Command economy
Economy designed to meet needs not wants
No incentive to work hard (people don’t often lose their jobs, so they do the bare minimum to get by)
Large bureaucracy means slow decision making, raises cost of production, lacks flexibility
No reward for initiative which slows progress

17. Market Economies Basic economic questions answered by consumers
Dollars = Votes

18. Examples of Market economies
USA, Canada, UK, etc. etc.

19. Advantages of Market Economies
Adjusts to change based on consumer wants
High degree of individual freedom
Low levels of government interference
Because individuals (with money) make the decisions, everyone (with money) has a voice in the way the economy runs
Wide variety of available goods & services
Many choices = high degree of consumer satisfaction

20. Disadvantages of Market Economies
Poverty: only those with money can participate
Market does not provide for people’s basic needs. Governments must attempt to do this (think Katrina).
High degree of uncertainty people lose jobs, businesses fail
Greed based system puts profit before people

21. What is a Mixed Economy?
A mixed economy blends components of two or more of the following economic systems to varying degrees: traditional, market, and command