Economic Systems

Economic Systems

ECONOMICS- As a social science that studies how a society's resources are shared, economics describes and analyzes choices about the way goods and services are produced, distributed, and consumed.

Economic Systems • An economic system describes how a country’s economy is organized • Because of the problem of scarcity, every country needs a system to determine how to use its productive resources • Scarcity = not having enough of something • An economic system must answer 3 questions…

Economic Systems • WHAT TO PRODUCE? (What kinds of goods and services should be produced?) • HOW TO PRODUCE? (What productive resources are used to produce goods and services?) • FOR WHOM TO PRODUCE? (Who gets to have the goods and services?

Three Types of Economic Systems: • 1. Traditional Economy • 2. Command Economy • 3. Market Economy • * Most democratic countries are… Mixed Economies! (Market + Command)

Traditional Economy • An economic system in which economic decisions are based on customs and beliefs • People will make what they always made & will do the same work their parents did & based on gender (traditional male & female roles) • Exchange of goods is done through Bartering: trading without using money

Traditional Economy • Who decides what to produce? • Peoplefollow their customs and make what their ancestors made • Who decides how to produce goods & services? • People grow & make things the same way that their ancestors did • Who are the goods & services produced for? • People in the village who need them

Traditional Economy • Examples: • Villages in Africa and South America • the Inuit tribes in Canada • the caste system in parts of rural India • the Aborigines in Australia

WHAT MIGHT A TRADITIONAL ECONOMY LOOK LIKE? IF YOU CAN DRAW, DRAW NEXT TO YOUR DEFINITION. IF NOT, TURN TO YOUR NEIGHBOR AND DESCRIBE IT.

Command System Government (Gov’t) makes all economic decisions & owns most of the property Governmental planning groups determine such things as the prices of goods/services & the wages of workers This system has not been very successful & more and more countries are abandoning it

Command Economy • Who decides what to produce? • Government makes all economic decisions • Who decides how to produce goods and services? • Government decides how to make goods/services • Who are the goods and services produced for? • Whoever the government decides to give them to

Command System Countries with communist governments have Command economies Examples: There are no truly pure command economic systems, but close countries are: North Korea, former Soviet Union, Cuba

What would your life would look like if you lived in a command economy? TURN TO YOUR NEIGHBOR AND DISCUSS:

Market Economy • An economic system in which production and distribution questions are answered by prices and profits (supply and demand) control this economy • Most of the resources are owned by private citizens • Economic decisions are based on Free Enterprise(competition between companies) also called Capitalism • Important economic questions are not answered by gov.t but by individuals • Gov. does not tell a business what goods to produce or what price to charge

Market Economy • Who decides what to produce? • Businesses base decisions on supply and demand and free enterprise (PRICE) • Who decides how to produce goods and services? • Businesses /people decide how to produce goods • Who are the goods and services produced for? • consumers

Market Economy There are no truly pure Market economies, but the United States is close. In Europe, the UK is considered the most free economy. Free means that businesses can operate without too many rules from the government.

STOP AND THINK…. VOLUNTEERS OR THE MAGIC NAME WHEEL? DESCRIBE AN ADVANTAGE OF LIVING IN A MARKET ECONOMY. DESCRIBE A DISADVANTAGE OF LIVING IN A MARKET ECONOMY.

In a truly free market economy, the government would not be involved at all • There would be no laws to protect workers form unfair bosses • There would be no rules to make sure that credit cards were properly protected • Many societies have chosen to have some rules to protect consumers, workers, and businesses (MIXED) • These rules reduce the freedoms that businesses have, but they also protect the workers and consumers

Mixed Economy • Market + Command = Mixed • There are no pure command or market economies. • To some degree, all modern economies exhibit characteristics of both systems and are often referred to as mixed economies. • Businesses own most resources and determine what and how to produce, but the government regulates/controls certain industries

Mixed Economies • Most democratic countries fall in this category (there are no truly pure Market or Command economies). • Examples: Brazil, Mexico, Canada, UK, US, Germany, Russia, Australia, etc.

SUM IT UP HOW IS A MIXED ECONOMY RELATED TO A MARKET ECONOMY AND A COMMAND ECONOMY?

Economy Continuum Command (less free) Market (more free) UK US Germany Cuba Russia Australia

Which Economic System Is Best?Depends on who you ask but if you are an entrepreneur (who wants to make money) then a market system is best • Market system has proven to be best because it promotes the goals of growth, freedom, & efficiency • Citizens are free to own their own property and use it in the most efficient and profitable way • Command and Traditional systems sometimes offer more security, but are not nearly as strong in efficiency, growth, freedom, and environmental quality

Economic Systems