Unit 5, Lesson 11 Economic Systems Today AOF Business Economics Copyright © 2008–2011 National Academy Foundation. All rights reserved.

Economic reality varies widely between countries The Economic Systems Spectrum is a tool for classifying different economic systems and showing ways in which they differ Nearly all economic systems today fall between the two extremes Why might a pure command or pure free-market system have problems?

Pure free-market systems may neglect social and environmental issues, and are prone to instability Fewer worker protections Environment often is not valued & protected properly Instability (“boom and bust”) has high social costs Command Economy Mixed-Market Economy Free-Market Economy What are a clean environment and job security worth? Little or no regulation Greater inequality Less economic security

Pure command systems neglect efficiency and innovation, and can be environmentally reckless too Fewer incentives for innovation and performance Less consumer choice Inefficient allocation of scarce economic resources Going for maximum production inefficiently can do environmental damage Command Economy Mixed-Market Economy Free-Market Economy Would working for the good of your country be incentive enough? Less economic innovation Too much regulation Supply shortfalls

Most of today’s economies are mixed Economies differ from each other in that they tend either to one side (command) or the other (free market) Where a country’s economy falls along the spectrum affects the way its businesses operate Command Economy Mixed-Market Economy Free-Market Economy China Mexico USA