Economies in Transition The International Economy

Economic System command traditional market What products to produce How to produce For whom to produce command traditional market

Traditional Economy A system that answers the What?, How?, and For whom?: the way they have always been answered Strength: minimizes friction and enhances cooperation Weakness: restricts individual initiative and economic growth

Command Economy A system that answers the What?, How?, and For whom?: by central authority through planners and a rationing system Strength: everyone receives necessary goods regardless of ability to contribute to society Weakness: shortages, surpluses, inferior products

Market Economy A system that answers the What?, How?, and For whom?: by the interaction of the forces of supply and demand Strength: resources are efficiently used to provide a wide variety of products at the lowest prices Weakness: competition results in people who are very wealthy and very poor

The Market Economy: Adam Smith Invisible hand: the best interest of a society are served when individual consumers and producers compete to achieve their own private interests

Mixed Economy A system that answers the What?, How?, and For whom?: by a mixture of traditional, command, and market systems Most real world systems are mixed

Capitalism Private ownership of factors of production Businesses make product and pricing decisions Decentralized decision-making through markets CONSUMER SOVEREIGNTY: Freedom of consumers to cast their dollar votes to buy or not buy at prices determined in a competitive market

Socialism & Communism Karl Marx Socialism Communism Public ownership of factors of production Centralized decision making by the government Communism Stateless, classless economic system in which all the factors of production are owned by the workers, and people share in production according to their needs The highest form of socialism that should be strived for Karl Marx