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Economic Systems When deciding how to use it’s limited resources, every country answers 3 questions about production and distribution What will be produced? How will it be produced? For whom will it be produced? How a country answers these questions depends on the type of economic system they have.
Four types of Economic Systems Traditional Economy Command Economy Market Economy Mixed Economy
Traditional Economy What to produce? What people need to survive. How to produce it? Hunting, farming, gathering (social roles determine who does what) For whom to produce? Make their own products (what they have always made)
Characteristics of Traditional
Command Economy Overview Government owns and operates the factors of production. The government would decide who would be farmers, what they would grow, and how much would be turned over to the government. Also called Socialism, communism Examples: North Korea, former Soviet Union, Cuba
Command Economy What to produce? Whatever the government decides How to produce it? However the government decides For whom to produce? Class reward system; waiting in line/rations
Characteristics of Command
Characteristics of Command
Market Economy What to produce? What people want to buy and sell How to produce it? Supply and demand For whom to produce? Determined by how much someone is willing to pay for it
Market Economy Characteristics
Market Economy Characteristics Competition determines prices which increase the quality of the product (you want to make the best and most inexpensive product, so consumers will buy your product instead of your competitor’s product) No government intervention in the economy ALSO CALLED CAPITALIST ECONOMY
Mixed Economy Individuals own most resources and determine what and how to produce. Government regulates certain industries. Has features of both market and command economies. Example: China, most nations The US has a market economy but the government still has control over wages, social security and some policies.
PURE COMMAND PURE MARKET ECONOMIC FREEDOM CONTINUUM (^010 20 30 4050 60 70 80 90 ) Repressed Free 66.1-Israel 60.8 Turkey 52.8- Saudi Arabia
