2 What is an Economic System? The way in which a nation uses its economic resources to satisfy peoples wants and needs.Each economic system answers the 3 Basic Questions:1. What should be produced?2. How should it be produced?3. For whom should it be produced?
3 Types of Economic Systems The 4 major economic systems all answer the 3 Basic Questions differently.There are 4 major types of economic systems:TraditionalCommandMarketMixed
4 Traditional Economy3 Questions are answered according to tradition, customs, and beliefs.Ideas, skills, and rules are handed down from generation to generation.+ = Known expectations, strong fam/ community.- = change/innovation is discouraged, choice is very limited, production is inefficient.Examples: Inuit of NA, Kalahari of Africa.
5 Command Economy 3 Questions are answered by the government. Individual business owners have little say in what is produced, how much is made, etc.The government also decides how goods are distributed.+ = Decisions can be made quickly- = lack of incentive to work hard, be creative; also lack of choicesExamples: North Korea, China, former Soviet Union
6 Market Economy Also known as Capitalism…the goal is to make a profit. 3 Questions are answered by individuals/ business owners with no government intervention.Prices determine themselves based on supply and demand.+ = Many choices, potential for profit, creativity is rewarded, competition means lower prices, better quality.- = Those unable to work may suffer, owners may take advantage of workers.
7 Mixed Economy A combination of a market economy and a command economy. Most countries, including the U.S., have a mixed economy.Individual decision making is combined with government intervention and regulation.