Economic Systems

Traditional Economy In traditional economy skills are passed from parents to children. Tools are simple and powered by human or animals. Some societies in Africa, Asia, and Latin America still have a sizeable traditional economies, where goods are made by hand.

The Market System In the market system goods and services are bought and sold in a market. Businesses are privately owned, and business people produce for profit. The market system is also called capitalism. The US, Europe, and Japan are all market systems.

Command Economy In a command economy factories and farms are owned by the government. Central planners make the basic economic decisions. Command economies are also called communism. The Soviet Union, China, and Cuba were command economies.

Mixed Economies In reality most societies have mixed economies, using some markets and some government control. Countries with larger markets are referred to as capitalist, while countries with larger government sectors are often called socialist.

Economic Systems Spectrum

Democratic Socialism The term entered our political discussion with the candidacy of Bernie Sanders. For Sanders, Democratic Socialism, refers to a policy of narrowing the gap between rich and poor, providing universal health care through the government, and providing free college. The term is most often used in relationship to Western European countries, like Sweden, who provide “cradle to grave social services” Critics point out that these societies have higher taxes. These are democratic countries, as opposed to totalitarian communist nations with one party rule.

Which do you like best? Discuss with your partner which economic system you like best. Are there aspects of different systems that you would like to combine. Do you think Americans understand and will vote for a Democratic Socialist, like Sanders? Why or why not?

A Doctor’s Diagnosis How does the doctor decide if a patient is healthy or sick? What things would a Dr. do at a check up?

An Economist’s Diagnosis How would an economist decide if an economy is healthy or sick? What indicators do they use to evaluate economic performance?

Economic Goals Economists use Gross Domestic Product (GDP) to measure if the economy is growing. They track the unemployment rate to see how many people are working or unemployed. They trace the general rise or fall in prices over time, called the inflation rate.

Social Goals In a market economy people value economic freedom. However, we are also concerned with equity to insure that goods and services are distributed fairly. And we value economic security, especially for the unemployed and senior citizens.

Capitalism The capitalist economic system is characterized by: Economic freedom Voluntary exchange Private property rights Profit Motive Competition

Entrepreneurs Entrepreneurs are business people They start businesses with the goal of making a profit. Many fail, but some succeed in building successful enterprises. Bill Gates and Steve Jobs are famous computer entrepreneurs.

Consumers People who buy goods and services are consumers. Consumer tastes and preferences for goods play a crucial role in determining which goods are successful in the market. Consumer Sovereignty means that consumers decide what is and isn’t produced.

The Role of Government Government has an important role to play, although it doesn’t run the market. Government makes sure that businesses play by the rules. It regulates businesses to insure public safety. In some cases government provides goods such as parks, schools, and military.