ECONOMIC SYSTEMSECONOMIC SYSTEMS

How do we provide the wants How do we provide the wants and needs of society?and needs of society?

Economic systemsEconomic systems

An organized way of providing for the An organized way of providing for the wants and needs of their peoplewants and needs of their people

We have 3 basic ways to answer this We have 3 basic ways to answer this questionquestion• Traditional EconomiesTraditional Economies• Command EconomiesCommand Economies• Market EconomiesMarket Economies

Traditional EconomyTraditional Economy Why do we leave tips at a Why do we leave tips at a

restaurant?restaurant? Why do we eat Thanksgiving dinner?Why do we eat Thanksgiving dinner? Why do we shake hands with Why do we shake hands with

strangers?strangers? Why does the bride toss the bouquet Why does the bride toss the bouquet

at a wedding?at a wedding? …………………………………………………………………………………….. TRADITION, roles and economic TRADITION, roles and economic

decisions are defined by custom.decisions are defined by custom.

Traditional EconomyTraditional Economy

StrengthsStrengths• Set economic roles Set economic roles

for all members of for all members of the communitythe community

• Stable, predictable, Stable, predictable, and continuous lifeand continuous life

WeaknessesWeaknesses• Discourages new Discourages new

ideasideas• Stagnation and lack Stagnation and lack

of progressof progress

How would your life be different if you had grown up in a traditional economy?

Command EconomyCommand Economy

An economy in which a central An economy in which a central authority makes most of the authority makes most of the economic decisions.economic decisions.• These are found today in………….These are found today in………….

North KoreaNorth Korea Peoples Republic of ChinaPeoples Republic of China CubaCuba Former Soviet UnionFormer Soviet Union

Command EconomyCommand Economy

StrengthsStrengths• Capable of dramatic Capable of dramatic

change in a short change in a short timetime

• Health and public Health and public services available services available at little or no costsat little or no costs

• EqualityEquality

WeaknessesWeaknesses• Does not meet Does not meet

wants and needs of wants and needs of consumersconsumers

• Lacks effective Lacks effective incentives for workincentives for work

• Requires large Requires large bureacracybureacracy

• New and different New and different ideas are ideas are discourageddiscouraged

Command EconomyCommand Economy

In what ways are traditional and In what ways are traditional and command economies alike?command economies alike?

In what ways are they different?In what ways are they different?

Market EconomyMarket Economy

People and firms act in their own People and firms act in their own best interest to answer the basic best interest to answer the basic economic questionseconomic questions• People’s decisions act as “dollar votes”.People’s decisions act as “dollar votes”.• Consumers answer the whatConsumers answer the what

Ex. US, Canada, Japan, South Korea, Ex. US, Canada, Japan, South Korea, Singapore, and parts of Western Europe.Singapore, and parts of Western Europe.

Market EconomyMarket Economy

StrengthsStrengths• Can adjust to Can adjust to

change graduallychange gradually• Individual freedomIndividual freedom• Notable lack of Notable lack of

gov’t interferencegov’t interference• Decentralized Decentralized

decision makingdecision making• Variety of goods Variety of goods

and services = and services = Consumer Consumer

WeaknessesWeaknesses• Rewards only Rewards only

productive productive resourcesresources

• Must guard against Must guard against market failuresmarket failures

Exit QuestionExit Question

In the early 1990s many Eastern In the early 1990s many Eastern European nations moved from a European nations moved from a Command Economy to a Market Command Economy to a Market Economy. What problems do you Economy. What problems do you think they faced during the think they faced during the transition?transition?

How are the WHAT, HOW, and FOR How are the WHAT, HOW, and FOR WHOM answered in the 3 economic WHOM answered in the 3 economic systems?systems?