Every society has an economic system to allocate goods and services. Chapter Intro 2

Section Preview In this section, you will learn about the different types of economic systems that govern WHAT goods and services to produce, HOW to produce them, and FOR WHOM to produce them. Crash Course Economic Systems Section 1-Preview

Content Vocabulary Academic Vocabulary economic system traditional economy command economy market economy market capitalism mixed economy socialism communism Academic Vocabulary stagnation allocate emphasizing Section 1-Key Terms

Are you familiar with the similarities and differences between a market economy and a command economy? A. Yes B. No C. Somewhat A B C Section 1

Economic Systems All societies use an economic system to provide for needs and wants of their people. Three major economic systems exist: Traditional Command Market Comparing Economic Systems Section 1

Economic Systems (cont.) Most economies combine elements of the three. Comparing Economic Systems Section 1

Traditional Economies Traditional societies use ritual, habit, or customs to answer the basic questions of WHAT, HOW, and FOR WHOM to produce. Section 1

Traditional Economies Traditional societies use ritual, habit, or customs to answer the basic questions of WHAT, HOW, and FOR WHOM to produce. Section 1

Traditional Economies (cont.) A traditional economy—use of scarce resources and economic activity is based on habit or custom. Section 1

Traditional Economies (cont.) Advantages Everyone knows which role to play. Little uncertainty on what or how to produce. Customs and traditions determine who is provided for. Section 1

Traditional Economies (cont.) Disadvantages Individuals generally not free to make decisions New ideas discouraged, leading to stagnation and a lower standard of living Strict rules defined by elders and ancestors Section 1

Which of the following societies operate under a traditional economy? A. Australian Aborigines B. Botswana C. Mbuti D. All of the above A B C D Section 1

Command Economies Command economies rely on a central authority to make most of the economic decisions. Section 1

Command Economies (cont.) A central authority makes the major decisions in a command economy. Section 1

Command Economies (cont.) Advantages Can change direction drastically through emphasizing/allocation Health and public services available to everyone at little or no cost Section 1

Command Economies (cont.) Disadvantages Basic wants and needs of consumers are ignored. Economies tend to be unproductive, not producing a good product. Large decision-making bureaucracy lacks flexibility. Section 1

Command Economies (cont.) Severely limits private property rights Individual freedom and initiative are limited. Section 1

Which is a disadvantage of a command economy? A. Large decision-making body needed B. Health and public services available to everyone C. Can change from a rural society to an industrial nation in a few decades A B C Section 1

Market Economies In a market economy, consumers and businesses jointly answer the questions of WHAT, HOW, and FOR WHOM to produce. Section 1

Market Economies (cont.) A market economy allows people to make decisions in their own best interest. Buyers and sellers exchange goods and services in a market. Market economies are based on capitalism. Capitalism means that the factors of production are privately owned. Section 1

Market Economies (cont.) Advantages High degree of individual freedom Adjusts gradually to change over time Small degree of government interference Decision making is decentralized Large variety of goods and services High degree of consumer satisfaction Section 1

Market Economies (cont.) Disadvantages Not everyone is provided for May not provide enough of some basic goods and services High degree of uncertainty for workers and employers Section 1

B. Environmental protection C. Care for elderly and disabled In the following areas, do you think government needs to increase or decrease its presence? A. National defense B. Environmental protection C. Care for elderly and disabled A B C Section 1

Mixed Economies Most economies in the world today feature some mix of traditional, command, and market economies. Section 1

Mixed Economies (cont.) Most economies in the real world are mixed economies. When political systems are considered with economic systems, the picture gets more complicated. An example is socialism and its extreme, communism. The Spectrum of Mixed Economies Section 1

Mixed Economies (cont.) The type of political system in a mixed economy is less important than the way basic economic decisions are made. The Spectrum of Mixed Economies Section 1

Mixed Economies (cont.) Advantages of a mixed economy Provides assistance for some people who might otherwise be left out In a democratic society, voters use electoral power to affect WHAT, HOW, and FOR WHOM decisions. In a socialist society, FOR WHOM is addressed more directly by government. Section 1

Mixed Economies (cont.) Disadvantages More services mean higher costs for citizens overall. In socialist countries, availability of services may be limited or quality deteriorates over time. Section 1

What is the main advantage of a mixed economy? A. Ownership and control by government B. More services are provided at a higher cost to citizens. C. Provides assistance to people otherwise left out A B C Section 1

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