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Economic Systems

Economic Systems. Economic Systems. Because of the problem of scarcity (a limited supply of something) every country needs a system to determine how to use its resources.

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Economic Systems

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  1. Economic Systems

  2. Economic Systems • Because of the problem of scarcity (a limited supply of something) every country needs a system to determine how to use its resources. • Countries develop economic systemsto determine how to use the limited resources to answer the three economic questions.

  3. Three Questions We classify economic systems according to how they answer these 3 questions. What to produce? How to produce? For whom to produce?

  4. Traditional Economy“That’s The Way We’ve Always Done It ”

  5. Traditional Economy • Who decides what to produce? • People follow 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.

  6. Command Economy“We Do What We’re Told”

  7. Command Economy • Who decides what to produce? • Government makes all economic decisions • Who decides how to produce goods and services? • Gov’t decides how to make goods/services • Who are the goods and services produced for? • Whomever the government decides to give them to

  8. Market Economy“Make As Much As We Want and Do It Any Way We Want ”

  9. Market Economy • Who decides what to produce? • Businesses base decisions, like price, on supply and demand and free enterprise • Who decides how to produce goods and services? • Businesses decide how to produce goods • Who are the goods and services produced for? • consumers

  10. Mixed Economy • No system in the world is 100% command, market, or traditional. It is a mixture of two systems. • Mixed economy - economic system that incorporates elements of different systems (usually command and market) • UK, Germany, and Russia are mixed: • Market - malls, restaurants, entrepreneurship • Command - minimum wage, labor laws

  11. Economic Continuum A group of financial experts set up a rating system to help us understand how much command and market each country has in it. This Index of Economic Freedom gives each country a number that can be plotted on a economic continuum.

  12. Economic Systems Pure Market Pure Command Mixed Economy

  13. Economic Systems Pure Market Russia 51% Germany 71% United Kingdom 79% 0 100 Pure Command Mixed Economy

  14. EconomicSystems Pure Market Cuba 28% Brazil 57% Canada 81% 0 100 Pure Command Mixed Economy

  15. Economic Systems Pure Market Australia 83% 0 100 Pure Command Mixed Economy

  16. Summary Question What are the three types of economic systems? Traditional Command Market

  17. Summary Question • . What are the 3 economic questions that determine which type of economic system a country is using? What to produce? How to produce? For whom to produce?

  18. Summary Question • Most countries are _____________ economies, because ___________________________. • Most countries are mixed economies, because they have characteristics of 2 or more economic systems. They most often fall between command and market.

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