Economic Systems
Economic Systems
Definition: The method a society uses to produce and distribute goods and services. Every society must answer three
questions:
1. What goods and services should be produced?
2. How should these goods and services be produced?
3. Who consumes these goods and services?
(how will they be distributed?)
Traditional Economy
Based on customs/beliefs handed down by generation
Advantages:1. Expectations are clear2. Strong family and community bonds
Disadvantages:3. Progress comes slowly4. Inefficient methods of production
Examples: Amish society Inuit peoples of the Arctic region Aborigines of Australia’s outback
Command Economy Government controls factors of production &
makes decisions regarding the 3 basic q’s Decisions might come from single person or
a groupAdvantages:1. Resources can be re-allocated (re-routed)
quickly2. Very low unemployment
Disadvantages:3. Little or no incentive for workers4. Goods are often poor quality5. Lack of choices for consumers
Examples6. Former Soviet Union7. North Korea8. Cuba
Market Economy
Aka “capitalist economy” or “capitalist system”
Individuals can own or control: Land, labor, capital (the factors of
production) Individuals are motivated by self-
interest Decisions are guided by prices
Market Economy, cont.
Advantages:1. Freedom of choice2. Wide variety goods/services3. Rewards those who are motivated4. Innovations, rapid progress, higher
std. living
Disadvantages: 5. Members of society who cannot
compete are often excluded from enjoying benefits of the system
Mixed Economy
Basically, a market economy BUT with limited government intervention (i.e., gov’t DOES impose some limits)
The American economy is mixedExamples of gov’t intervention in the U.S.
economy:1. Social security system2. Minimum wage law3. Anti-Monopoly laws
* Nearly all world economies today are mixed…some with MORE gov’t. control than others
Review of Yesterday
1. What is the economic system that is based on custom and beliefs?
2. What is the economic system where gov’t has control over everything?
3. What kind of economic system do we have in the United States?
4. Why is competition good for consumers?
Review of Yesterday
4. Why is competition in a mixed/market economy better for the consumer than the government control inherent in a Command economy (name two)?
5. What is the most common outcome of the quality of products in a Command Economy?