Economic Systems – Chapter 2, s1 Scarcity = unlimited wants but limited resources Economic Systems create an organized way of solving the problem of SCARCITY Economic Systems create a plan for answering the questions of What, How and For Whom to produce goods and services

Economic Systems – Chapter 2, s1 Traditional: ritual, habit and custom dictate how resources will be used; Native American, Amish, Eskimo Command: a central authority (government/one rules/committee) decides how to use resources; Cuba, North Korea Market: individuals and firms (buyers and sellers) act in their own best interests and make decisions about resources; no pure market systems exist, but US and Europe are based on market economics

Traditional Economy - customs

WHO / WHAT DECIDES WHICH ECONOMIC PRODUCTS TO PRODUCE? Traditional: ritual, habit and custom dictate what to produce Command: central authority / government / dictator decides what to produce Market: individuals and firms – buyers and sellers – decide what to produce

Command Economy - government

WHO / WHAT DECIDES HOW ECONOMIC PRODUCTS WILL BE PRODUCED WHO / WHAT DECIDES HOW ECONOMIC PRODUCTS WILL BE PRODUCED? (the management and use of resources) Traditional: ritual, habit and custom dictate how to produce EPs Command: central authority / government / dictator decides how to produce EPs Market: individuals and firms (buyers and sellers) decide how to produce EPs

Market Economy – individual choice

FOR WHOM TO PRODUCE IT? Traditional: Ritual, habit or custom determines who gets what – based on the way it’s always been done; no consumer choice Command: a central authority (government/one rules/committee) decides who gets what; little or no consumer choice Market: consumers choose what they want to buy, and sellers respond accordingly (or fail)

NAME THAT ECONOMIC SYSTEM…

STRENGTHS - Benefits Traditional: stable; predictable; everyone has a role Command: can change quickly, once government decides to change; “good government” may provide for all Market: individual freedom; variety of goods and services; happy consumers; Laissez-Faire

WEAKNESSES - Costs Traditional: discourages new ideas; lack of progress, no new technology; no choice Command: little or no choice; discourages new ideas unless “approved” by government; little incentive to work – all workers treated the same Market: rewards only productive resources - only the workers; those who are sick, old or too young to work have nothing

Successful Market Systems require: COMPETITION – keeps quality high and prices low Resources Must be TRANSFERABLE – people need to be able to change jobs; producers need to be able to change methods / goods / services; adaptable INFORMATION – everyone needs access to the same information to make informed choices as buyers and sellers; no unfair advantages