economic systems. introduction in any type of economic system, three basic questions must be...
TRANSCRIPT
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Economic Systems
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Introduction
In any type of economic system, three basic questions must be answered:
1. What will be produced?2. How will it be produced?3. For whom will it be produced?
We classify economic systems according to how they answer these questions.
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Traditional Economy“That’s The Way We’ve Always Done It Ville”
• Economic questions answered according to custom & tradition
• Production is done the way it has always been done.
• Examples Rural areas of South America & Africa
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Command Economy“We Do What We’re Told Ville”
• Economic questions answered according to government direction
• Government controls all economic activity
• Example Communist North Korea
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A Pure Command Economy
• The government controls the factors of production and makes all the decisions.
• The government is responsible for answering the three economic questions:
– How? The government owns all the factors of production and makes
allthe decisions about production
– Who? The government decides who receives what is produced in theeconomy
– What? One person (a dictator) or a group of government officials
(centralplanning committee) decides what is to be produced
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Market Economy“Make As Much As We Want Ville”
• Economic questions answered according to wishes of buyers & sellers
• Individual choice determines progress of market
• Example United States
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A Pure Market Economy
• No government involvement in economic decisions
• The government lets the people answer the three basic economic questions:
– What? Customers decide through their purchases (consumer sovereignty)
– How? This is left up to the individual business –BUT- a business
mustbe profitable
– Who? People who have money can buy more – this encourages
hardwork and investments
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Questions…
Is the United States a PURE Market Economy?
Does it operate without any type of government
intervention?
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Mixed Economy
• No system in the world is PURE
• Mixed Economy Economic system that incorporates elements of different systems (usually command and market)
• Example: United States – Market Malls, restaurants, entrepreneurship– Command Minimum wage, labor laws– Traditional “blue laws”, Chick Fil-A
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Mixed Economies• All economies are mixed; they are
classified based on how much the government is involved in the process
• Some government involvement through mandatory laws and regulations that businesses follow– Labor Laws, Minimum Wage
• The government provides social programs for those who need help– Medicare, welfare
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Continuum of Economic Systems
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