Economic Systems

Mr. Kraus Economics

Why do we have Economic Systems?

• Scarcity• Survival for any society depends on its

ability to provide food, clothing, and shelter for its people.

• The Economic System is the organized way a society provides for the wants and needs of its people.

Three Economic Systems

• Traditional Economy

• Command Economy

• Market Economy

Economic Questions

Traditional Economy

Market Economy

Command Economy

 

What to Produce

       

How to produce

       

For whom to produce

       

Traditional Economy• Economic

activity is based on ritual, habit and custom

Strengths of Traditional Economies

• Everyone knows their role• Little uncertainty over what to

produce or how to produce• The question of For Whom to

produce is answered by custom• Life is generally stable, predictable,

and continuous

Weaknesses of Traditional Economies

• Tends to discourage new ideas

• Lack of progress leads to lower standard of living

Market Economy• Markets allow

buyers and sellers to come together in order to exchange goods and services

Market Economy•People and

firms act in their own best interest to answer economic questions

Strengths• Markets can adjust over time• Freedom exists for everyone involved• Relatively small degree of

governmental influence• Decision making is decentralized• Variety of goods and services are

produced• High degree of consumer satisfaction

Weaknesses• The primary weakness is deciding for

whom to produce• The young, sick and old would have

difficulty in a pure market environment

• Markets sometimes fail

Command Economy

• Central authority makes most economic decisions

• Economic decisions are made at the top and the people are expected to go along with choices their leaders make

Strengths of Command Economies

• Change direction drastically in a relatively short time

Weaknesses of Command Economy• Not designed to meet the wants and needs of

individuals• Lack of incentives to work hard leads to

unexpected results• Large bureaucracy for economic planning• Not flexible in dealing with minor day to day

problems• People with new or unique ideas are stifled

BRAINSTORM

Which of theses systems best describe the economy of the United States?

Mixed Economy

-No Economic System is purely Command or purely Market .

-ALL economic systems use some combination of command and market features. LIKE A CONTINUUM

Example: North Korea

• Look for a few key elements– Government

– Values

– Standard of living

– Answer the 3 economic questions

In pods

• Answer the 3 economic questions

• Decide which type of economic system best describes North Korea’s economy

• Discuss: Based on this video, how can you tell the type of economy North Korea has?

Example: India

• Look for a few key elements– Government

– Values

– Standard of living

– Answer the 3 economic questions

https://www.youtube.com/watch?v=PZpDjxIPpFc&feature=player_detailpage

In Pods

• Answer the 3 economic questions

• Decide which type of economic system best describes India’s economy

• Discuss: Based on this video, how can you tell what type of economic system India has?

Now find your own!• Choose 2 countries.

• Research those countries (as well as India and the U.S.)

Things to think about:

Government

Standard of Living

Values

3 Economic Questions

Choose one of the countries you researchedIn 1 paragraph, tell me what country you have chosen, what are some of the values your country has, and what type of economic system has. Make a connection between the country’s values and the economic system.