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. 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 systems to determine how to use the limited resources to answer the three economic questions. Countries develop economic systems to determine how to use the limited resources to answer the three economic questions.

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

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

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

Command Economy “We Do What We’re Told”

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

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

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

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

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. 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. This Index of Economic Freedom gives each country a number that can be plotted on a economic continuum.

Economic Systems Pure Market Pure Command

Economic Systems Pure Market Pure Command Russia 51% Germany 71% United Kingdom 79%

Economic Systems Pure Market Pure Command Cuba 28% Brazil 57% Canada 81%

Economic Systems Pure Market Pure Command Australia 83%

Summary Question Summary Question What are the three types of economic systems? TraditionalCommandMarket

Summary Question. What are the 3 economic questions that determine which type of economic system a country is using?. 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?

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