2. Economic Systems

3. Economic System –The method or way a society uses its scarce resources to produce and distribute goods and services

4. Four Economic Systems Pure MarketMixed systems Pure Command Traditional

5. Traditional Economic System Relies on customs, habits, past to answer the basic economic questions little room for change (technology) small and close societies Amazon tribes, Amish

6. Market Economic System relies on individuals to answer the basic economic questions private individuals own the factors of production free exchange of goods and services pure market has never existed

7. Market Economy Advantages efficient allocation of the resources economic freedom growth encourages innovation consumer sovereignty Disadvantages unequal distribution of wealth doesn’t provide economic security doesn’t necessarily provide what is best for society as a whole

8. Adam Smith Wealth of Nations Self interest- we act for our own personal gain Competition- rivalry –consumers- low prices and high quality goods –producers- high profits Invisible Hand- people act in their own self interest and unknowingly guide the economy; therefore no government interference is necessary

9. Command Economic System Government answers the basic economic questions planned economies government ownership of all the factors of production USSR, China, Cuba

10. Advantages good for jump starting an economy good for a single effort such as a war Disadvantages poor quality of goods shortages of goods no consumer sovereignty government too bureaucratic no individual freedom

11. Mixed Economic Systems Capitalism –closest to pure market –limited government interference Democratic Socialism –government ownership of some of the factors of production Authoritarian Socialism (Communism) –closest to pure command –government owns most of the factors of production