Economic Systems
You should be able to: Identify the key characteristics of a Traditional Economy Command Economy Communism Socialism Free Market Economy Mixed Economy Compare the different economic systems Explain how an economic system may impact our economic decisions
What is an economic system?
It is a system that determines how to use a country’s limited productive resources.
What are the four basic economic questions all countries must answer?
What will be produced? Who will produce it? For whom will it be produced?
What determines what type of economic system a country has?
The key factor is the extent of government involvement
What are the characteristics of a traditional economy?
Traditional Economy Economic decisions are based on custom and historical precedent (example/pattern/practice) People often perform the same type of work as their parents and grandparents regardless of ability or potential
What are the characteristics of a free market economy?
Free Market Economy Private ownership of property/resources Profit motive (chance to make money) Competition Consumer sovereignty (individuals determine through purchases what will be produced) Individual choice Minimal government involvement
What are the characteristics of a command economy?
Command Economy Centrally planned economy Central ownership (usually the government) of property/resources Lack of consumer choice Government determines which goods and services are produced and how they are distributed Example: Former Soviet Union
Communism All property and resources are collectively owned by a classless society and not individual citizens “From each according to his ability; to each according to his need,” means that a person’s contribution has no effect on their access to what society produces. Workers control the means of production; therefore, all share equally in the benefit of success or the consequences of failure.
Socialism Government ownership of productive resources A planned economy Redistribution of income Social welfare characterizes a socialist’s society’s goals Peaceful and gradual extension of government ownership (revolution by ballot rather than bullet)
What are the characteristics of a mixed economy?
Mixed Economy Individuals and businesses as owners and decision makers for the private sector Government as owner and decision maker for the public sector Government role is greater than in a free market and less than in a command economy
What is the most common economic system?
It is mixed economies (including the United States)
Activity On the following table, look at the characteristics of each category. Determine which economic system is described based on the highlighted characteristics.
Motivation to Produce: Round 1 Round 2 Round 3 Choice of Jobs: Custom Directed Government Directed Individual Preference Motivation to Produce: High Self Gain Limited Social Gain Traditional Incentives What to Produce: Whatever the government decides is needed Whatever is the most popular Whatever was traditionally produced For Whom to Produce: Distributed by custom Highest bidder Those declared in need Name of the Economic System: