Traditional, Command, Market Economic Systems

Economic Systems Overview… Economics- the study of how people, businesses & countries use their limited resources (example: money & materials) There are 3 main types of economic systems & they all try to answer 3 BASIC economic questions: 1. What to produce, 2. How to produce, 3. For whom to produce **How they answer these 3 questions will determine how successful the country is.

Basic Needs We all need 4 basic things to survive: 1. Food 2. Clothing 3. Shelter 4. Water Everything beyond these 4 needs is called a WANT (ipod, designer clothes, car)

Economic Systems Economic systems can be categorized according to who makes most of the decisions in an economy. In a market economy, most of the decisions in the economy about what to produce, how to produce it and who receives it are made by individuals and firms. At the other end of the spectrum, in a command economy, government officials make most of the decisions in the economy about what to produce, how to produce it and who receives it. Most economic systems also contain elements of tradition or repeating decisions in ways made at an earlier time or by an earlier generation.

Traditional Economy Tradition means you do the same thing over and over again… People produce only what they need to survive and nothing extra People inherit their jobs from their parents Example: if your dad is a farmer you will be a farmer (there is little flexibility) This is the least developed (poorest) economic type There is never any change to modernize anything

Command Economy A system based on central control of trade and production. A government decides what goods and services are given to its people. It may even limit what jobs people can hold. Egypt is moving away from a command economy and toward a market economy. However, the Egyptian government still has some control over financial decisions in the economy. Pure command economies are now found only in politically isolated countries such as Cuba and North Korea.

Market (Capitalist) Economy Private ownership of business & property Little gov’t regulation (the gov’t doesn’t determine what to make—instead the markets do. Freedom to make own choices Based on supply & demand Constantly changes to make better products More $ is offered for better products and workers

Market Economy It is a system that is managed by the people. It is also known as a free market system, or capitalism. Market economies are based on supply and demand. Businesses control how much they produce, and people control how much they consume. A balance between what businesses want to produce and what people want to consume is the hallmark of a market economy.

Mixed…. Most economies are mixed in that some economic decisions are made by individuals and private firms, but some are also made by government officials, either through rules and regulations or through government-owned firms. The U.S. economy leans toward the market-oriented side of the spectrum. An economy like Cuba or North Korea is near the command economy side of the spectrum. But the dividing line between market and command economies in most nations is blurry rather than bright.

Entrepreneurs Entrepreneurs are willing to risk their own resources in order to sell them for financial gain or profits. Entrepreneurs are successful when they provide consumers with goods and services that consumers highly value. Entrepreneurs are willing to assume risk, and high risk can lead to high rewards. They have unique skills that help them develop new products or new cost-cutting production methods or new ways to serve consumers. Many entrepreneurs also have the discipline to work long and difficult hours to achieve their goals.

Opportunity Cost Opportunity Cost is the thing that is given up when given a choice. For example---You go to the store you can buy an ipod or bread. You buy the bread. The opportunity cost is the IPOD…..the thing you gave up and did not buy (the opportunity lost). This is an example of a need VS. a want. The bread is a need (food)—the IPOD is a want.