ECONOMIC SYSTEMS Ch.2 sec.1

An economic system (economy) is an organized way of providing for the wants and needs of people in a given area. (allocation of resources, circular flow) The way the 3 basic economic questions are answered, determines which of types of system it is. There Are 4 economic systems

Traditional Economy

1. Traditional (ritual, habit, custom). The questions are answered the same way it has done for many years (hundreds, thousands). Traditional systems are mostly seen in indigenous societies throughout the world. The barter (trade) system is used, but must have double coincidences of wants. People know their roles (men – hunters/protectors, women – child rearing/cooking, etc.), but there is no change, no modernity (technology)

2. Command. The questions are answered by the Central government. Command systems are seen in communist and socialist societies around the world. Command systems can switch production of guns and butter quite easily, it does what the government wants. This system does not provide for individual economic freedom, and no free enterprise (private ownership of business).

3 ism’s Compared and Contrasted Capitalism – Econ. system where the factors of prod. Are owned by private individuals, and free enterprise exists. (private ownership) Socialism - Econ. system where the factors of prod. Are owned by the central government, allows for limited private ownership (5-10%) Communism - Econ. system where the factors of prod. Are owned by the central government, does not allow for private ownership.

Market Economy

3. Market. The questions are answered by buyers and sellers through the market. Laissez Faire (no govt. intervention in economic affairs) exists. Economic freedom, free enterprise, capitalism and consumer sovereignty all exists in this system. There is no true market system today.

CONSUMER SOVEREIGNTY

Mixed Economy

4. Mixed. The questions are answered by buyers and sellers, with a little government intervention. Govt. is only a regulatory body that makes sure the market is safe for the consumers. (Consumer Product Safety Commission, Food and Drug Administration, Securities and Exchange Commission) Also, Restaurant grades in Ca. Economic freedom, consumer sovereignty, free enterprise, and capitalism also exist. The U.S. is a good example of a mixed economy.

Restaurant Grades

7 SOCIAL & ECONOMIC GOALS Ch.2 Sec.2

Economic freedom (economic choices: spending, occupations) Economic efficiency (use resources wisely, no waste) Economic equity (justice/fairness, salary, no discrimination, false advertisements) Economic security (protection from Layoffs, illness, injuries. unemployment, workers comp., SS, Obama Care?)

5. Full employment (Jobs for everyone who wants one between the working ages 16-67)  6. Price stability (no inflation – general rise in prices. Decreases our disposable income)  7. Economic growth (acquiring better jobs, homes, cars, clothes, etc.) People continue to increase their wealth as they age!

Capitalism / Free Enterprise Economy Ch.2 sec.3

5 Characteristic of Capitalism In order for capitalism to work, these conditions must be present: Economic freedom Voluntary exchange Private property rights Profit motive competition

Profit Motive the driving force that encourages one to improve his/her material well-being. (only in capitalist societies) key!