Economics: SS7E1 The student will … Analyze different economic systems Traditional Economy Command Economy Market Economy

TSW… Compare how traditional, command, and market economies answer the economic questions, such as:  What to produce?  How to produce?  For whom to produce?

Traditional Economy  Tradition means something that has been passed down in a culture from one generation to another.  Most economic decisions are based on custom and habit (hence the word “ traditional ”).  People mainly produce goods for their own families and neighborhoods.  People barter or swap goods.

In a traditional economy…  Everything operates on a small, rural basis.

In a traditional economy…  Consumers and producers make the decisions about what to produce and how to produce it.  It becomes a problem if people begin to want and need products that can’t be made or traded locally.

Command Economy  Centralized - government directed “ commanded ” economy  A central government al planning group makes most of the economic decisions. They decide  Which goods and services will be produced.  The prices that will be charged for the goods and services.  Wages to be paid to the workers.  What jobs the workers will do  How and where the goods will be produced.

Command Economy  A small group of people decide.  This small group commands the economy.

Command Economy  How are decisions made?  Government Planners  What problem can occur in a command economy?  People must secure government permission to start a new business.

Market Economy  Individuals make the decisions about what to produce and what to buy.  Other names for a market economy are….  Capitalism  Free enterprise  Laissez-faire  (french phrase for allows them to do as they please)

Market Economy  Who makes the decisions in a market economy?  Individuals

Market Economy  Who takes the financial risk in starting a new business in a market economy?  Individual business people

Mixed Economies Almost all modern economies in the world today have characteristics of all three types of economic systems. In other words, they are a mixture of economies.

Mixed Economies  Why are most modern economies referred to as mixed economies?  Most countries have aspects of all three economic types at work in their economies.  Why do most economies in the world operate between a market economy and a command economy?  Most countries have found they need a mixture of control to be successful and protect consumers.