Different Types of Economic Systems Unit 2 Lesson 2

There are different types of economic systems? Yes! Our economic system is not the only one in the world. There are several different systems through out the world. We are about to learn about them! 

Economic System #1 Traditional Economy A tradition is something that is passed down from one group to another. A traditional economy bases how it will answer the 3 basic questions of economics by how things were done in the past. In a traditional economy there is no change; how things were down in the past is how they are done in the present and in the future. Advantages to this type of economic system is that the people always know what to expect.

Economic System #1 Traditional Economy How you live, what you produce and who should get the goods and services is based on what your ancestors, the people who lived before you, did. Traditional economies may seem strange and like they couldn’t possible be around anymore BUT they are. Many traditional economies are located in the rural, places away from the cities, areas of the world. Most of these rural places are in isolated areas. What does isolated mean? Why do these areas have traditional economies?

Economic System #2 Command Economy In a command economy, government leaders give the answers to the three basic economic questions. The government gives the “commands” and so that is why it is called a command economy. Usually people in this type of economic system are not free and are expected to follow the decisions that the government leaders make. To make such a system work, the government needs to be in complete control and they plan everything; at times this system can be referred to as a planned economy. What is another term for this type of economy?

Economic System #2 Command Economy The “planners” in a command economy will decide how resources are used, will control all the natural resources, will decide how goods and services will be distributed, and may even decide the jobs people will preform. These “planners” may even stress heavy industries, or businesses that produce basic items in a large scale. An example of this is in the Soviet Union where the government made most factories focus on making steel. This was great to help make them into an industrialized country but it hurt them in other ways. How so?

Economic System #3 Market Economy In a market economy; the prices, the demands, the supply and what is produced are all determined by the consumer. Also known as Capitalism or Free Enterprise System A consumer is person who makes the choice to purchase or buy a good or service. The United States’ economy is a market economy. Other countries that have a market economy are Mexico, United Kingdom, Germany, and Canada. These are also known as 1st World Countries. These countries have a market economy because the prices of goods (products or a physical item) and services (something that is provided for you) are set by supply and demand.

3 Types of Economic Systems Traditional Command Market Description Effects on the People Three Economic Questions (What, How, Who) Answered By -Follows what has been set up for years -No new ideas or technology -Usually 3rd world countries -Government owns all -Government makes all decision -Capitalism -Free Enterprise System -Driven by choices of the consumer -1st world countries -No new ideas -People do the job that their family has always done -Very limited opportunities -New technology -New ideas -Abundance of choices can be overwhelming -Lots of freedoms -Limited opportunities -No real freedoms -Oppressive -Decisions based on what ancestors and the old ways set -Consumers make the decisions Consumers drive the prices -Consumers are in control -Government makes all decisions -Not all decisions benefit the people