Major Economic Systems STANDARD CE.11b

The Three Basic Questions of Economics Each type of economy answers the three basic questions differently. What will be produced? Who will produce it? For whom will it be produced?

4 basic types of economic systems Traditional economy Free market economy (Capitalism) Mixed economy Command economy (Communism)

What are the basic characteristics of a traditional economy, free market, command, and mixed economies?

Traditional Economy

Economic decisions are based on custom and historical precedent.

People often perform the same type of work as their parents and grandparents, regardless of ability or potential.

Examples in practice today: Many poor regions in: Southern Mexico South America Africa

Free market economy (Capitalism)

Free market economy (Capitalism) Private ownership of property/resources Profit motive Competition Consumer sovereignty Individual choice Minimal government involvement in the economy Consumers tell producers of goods what to produce

Explained in Cow Terms You have two cows. You sell one and buy a bull.

Examples in Practice Great Britain Japan

Command economy (Communism)

Karl Marx Communist Manifesto (1848)

Central ownership (usually by government) of property/resources

Centrally-planned economy

Lack of consumer choice

Explained in Cow Terms If they decide that you really need it You have two cows. The government takes them both and provides you with milk. If they decide that you really need it

Examples in Practice Cuba N. Korea

Command economy (Communism) Central ownership of property/resources Centrally-planned economy Lack of consumer choice

Mixed economy

Individuals and businesses as decision makers for the private sector

Government as decision maker for the public sector

A greater government role than in a free market economy and less than in a command economy.

Most common economic system today

Mixed economy Individuals and businesses as decision makers for the private sector Government as decision maker for the public sector A greater government role than in a free market economy Most common economic system today

Every country must develop an economic system to determine how to use its limited productive resources. The key factor in determining the type of economy a country has is the extent of government involvement.

Characteristics of major economic systems No country relies exclusively on markets to deal with the economic problem of scarcity.

QUIZ

The type of economy is determined by the extent of government involvement in — a. business creation b. taxes c. economic decision making d. fund-raising

Which of the following is not a type of major economic systems? a. Free market b. Cost market c. Command economy d. Mixed economy

Which of the following is not a characteristic of a command economy? a. Central ownership of property/resources b. Centrally-planned economy c. Private ownership of property/resources d. Lack of consumer choice

Individuals and businesses as decision makers for the private sector is a characteristic of a — a. free market b. cost market c. command economy d. mixed economy

Which of the following is not a characteristic in a mixed economy? a. Government as decision maker for the public sector b. A greater government role than in a free market economy c. Most common economic system today d. Central ownership of property/resources

Private ownership of property/resources is a characteristic of a — a. free market b. cost market c. command economy d. mixed economy

All of the following are characteristics of a free market except — a. profit b. competition c. consumer sovereignty d. lack of consumer choice

Individual choice is a characteristic of a — a. free market b. cost market c. command economy d. mixed economy

The economy of the United States of America is a — a. free market b. cost market c. command economy d. mixed economy