Types of Economic Systems

Types of Economies 1. Traditional – economic system based on tradition 2. Command – economic system where the government controls the factors of production 3. Market – economic systems where individuals make decisions and own their own businesses

Market economies are also known as capitalist 4. Mixed economy – contains parts of both command and market economic systems Almost all economic systems are mixed (they just lean towards one side or the other)

Adam Smith (1732 – 1790) Adam Smith is the founder of modern economics He thought that government should stay out of economics Let individuals make decisions on what to buy and sell

Smith had a theory of the “Invisible Hand” If people are left alone, the invisible hand would achieve maximum good for society Everyone doing what is best for themselves will lead to what is best for everyone

Smith’s theory and government role Government should provide national defense Gov’t should also eliminate any practices that limit trade Must also issue money, tax people, and settle legal disputes.

Theories Today Obama thinks the government needs to step in and help stimulate the economy McCain thought the government should intervene, but not to the same extent as Obama Government has more of a role in the U.S. than the pure capitalist system of Adam Smith