Three Types of Economies

Traditional Economy The basic economic decisions are made according to long-established patterns of behavior that are unlikely to change. Family is the basic unit of the traditional economy- BUT all members work together to benefit society Ex. A tribe of hunters may follow certain customs.- Camp at the same place every year, Hunt the same game every year. Roles of the family members stay the same every year.

Traditional Economies (Tribal Example) WHAT TO PRODUCE: Tradition answers the question of what and how much to produce. In the tribe, they want to “produce” game. HOW TO PRODUCE: Tradition- same methods and weapons used year after year to catch the game. Also the same methods of preparing it WHO GETS WHAT IS PRODUCED: Depends on tribe- could be based on your role in the hunt….could be based on the number of members in your family. WHO OWNS THE RESOURCES: People in traditional economy typically own their own resources (land, tools, labor). They have some freedoms (daily choices) but not in regards to the economic decisions already set by tradition.

Command Economies The government or a central authority owns or controls the factors of production and makes the basic economic decisions. In these the government typically controls of the important parts of the economy- transportation, communication, banking and manufacturing. Farms and many stores are government controlled. Government sets wages. Government- NOT private individuals, makes the major economic decisions.

In a command economy, a central planning group makes most of the decisions about how, what, and how much to produce. Up to that group to make sure there are enough resources and workers to produce what is needed. Government chooses what products will be available to consume This leaves Consumers with Little or No power in the economy.

Who Gets What? In a Command System the decision of who gets what depends largely on the goals and values of the central authority. Ex. A Greedy Dictator might choose to make himself and his friends rich On the other hand, if the governments goal was to satisfy wants based on individual need, then each person might get food, clothes and housing regardless of how little he or she produced.

Market Economy A MARKET ECONOMY is a system in which private individuals own the factors of production and are free to make their own choices about production, distribution, and consumption. The United States is based on the Market system In the ME process, all decisions are made through a kind of bargaining process that takes place in markets. Farmer’s markets, sporting goods stores, NYSE, and neighborhood deli are all markets The Value of what you have to offer sets the value of what you can get- NO ONE PERSON OR GROUP RUNS A MARKET ECONOMY

Decision Making by Individuals In an ME, people are free to decide how to use the factors of production Free to choose businesses to start and jobs to do Major Economic decisions are what to produce, how to produce it and How much to produce are made by individuals- not the government or tradition People who have more can purchase more in a ME

Competition Profit Seeking Producers compete to satisfy the wants of the consumers Workers compete for jobs Profit Seeking An incentive is the hope of a reward that encourages people to behave in a certain way (Profit is a big incentive) PROFIT is the difference between the total cost of production and the total revenues received from buyers. People make decisions based on profit expectations Profits also lead people to invest. To INVEST means to use your money to help a business get started or grow, with the hope that the business will earn a profit in which you can share.

Free Enterprise and Capitalism (2 names for ME) FREE ENTERPRISE- refers to the system in which individuals in a ME are free to undertake economic activities with little or no control by the government CAPITALISM- is a system in which people make their own decisions about how to save resources as capital and how to use their capital to produce goods and services. The term capitalism calls attention to the fact that, in a market economy, capital is privately owned

3 Type of Economies- Traditional, Command, Market… 3 Type of Economies- Traditional, Command, Market….but Most of Today’s Countries are MIXED ECONOMIES- mixtures of all three economies. Two very different examples of this are the United States and The People’s Republic of China

Before the late 1980’s China was a Command Economy- The Government had control of the resources and made the important economic decisions In the late 80’s and 1990’s, the Government took steps to make China a more mixed economy by adding features of free-enterprise to its economic system Private ownership growing steadily Investment from other countries growing One of the world’s fastest growing economies

A Market or Free-Enterprise system A Market or Free-Enterprise system. Individuals and privately owned businesses own the factors of production. Business owners are free to compete for production and distribution of products they think they can sell Consumers are free to buy any goods they want and can afford. Very little government intervention HOWEVER…there are elements of government control in our economy.

GOVERNMENT INTERVENTION Education Mail Delivery Military Defense Highways and Airports Sometimes people want the government involved more…sometimes less