Economic Systems

Problems All Economies Face Unlimited Wants Limited Resources Scarcity Scarcity forces all countries to answer these 3 questions Scarcity leads to conflict 1. What to produce? 2. How to produce it? 3. Whom to produce it for?

Do All Countries Answer These Questions The Same Way? No Conflicts arise in all economies

Different Countries Use Different Systems To Answer These Questions Major Economic Systems Include: Market Traditional Command

Market Economic System Also known as Capitalism, Free Market, or Free Enterprise Defined: ownership of resources and means of production by individuals, basically free of government control in deciding goods and services produced Ownership of Resources: Productive resources privately owned and operated

Market Economic System Allocation of Resources: Resources are obtained through the lure of profits in the market Role of Government: Government only tries to make sure there is some competition and provides some public goods

Market Economic System Goals: Profit for individuals, people are motivated by economic rewards Methods: Competition, supply and demand Characteristics: Private property, specialization, minimal government regulation Political System: Democracy/Parties Current World Examples: Switzerland Canada Australia Chile Argentina South Africa

Command Economic System Defined: An economy in which all of the major economic questions are answered by a central authority Ownership of Resources: All Productive resources are owned and operated by the government

Command Economic System Allocation of Resources: Central planning group directs all resources Role of Government: Government makes all decisions

Command Economic System Goals: Equal distribution of income Methods: Revolution to gain control, no opposition forces allowed Characteristics: no private property, one political party Political System: Totalitarian Current and Former World Examples: Cuba North Korea China Former Soviet Union

Traditional Economic System Defined: An economic system that does things as it always has Ownership of Resources: All productive resources are owned by families Allocation of Resources: Based of customs and traditions within the tribe Role of Government: Tribes play some role in making economic decisions

Traditional Economic System Goals: Keep things how they have always been Methods: Customs and traditions passed down through family lineage Characteristics: Children follow in parent’s footsteps, lack of economic growth Current Examples:Aborigines Australia Mbuti Pygmies of the Congo Kung Bushmen of Africa Political System: Tribal Organizations

No Pure System Is Perfect: Market Strengths: Able to change gradually Individual freedom for all Lack of government Interference Variety of goods and services High consumer satisfaction Promotes economic freedom and growth Weaknesses: Does not protect the young, sick, old who cannot work Market failures happen leading to lots of ups and downs Doesn’t promote economic security, equity, or efficiency as well as other systems

No Pure System Is Perfect: Command Strengths: Things can be changed dramatically in a short time Promotes economic security, efficiency, and equity Weaknesses: Does not meet the needs and wants of consumers Lacks effective incentives to get people to work Needs a large bureaucracy which consumes resources Inflexible for day-to-day changes New and different ideas discouraged, people can’t be individuals Doesn’t promote: economic growth or freedom

No Pure System Is Perfect: Traditional Strengths: All members of the community have defined roles Stable, predictable, and continuous life Promotes: economic security and equity Weaknesses: Discourages new ideas or ways of doing things Stagnation and lack of progress Doesn’t promote economic growth or freedom

If No Pure System Is Perfect Then What? Most countries in the world are a blend of different elements They are called mixed or combination systems Market Command Economies

Mixed Economic System Defined: A system in which economic questions are answered by a combination of command and market methods Ownership of Resources: Basic utilities, other important resources government owned and operated; the rest privately owned and operated

Mixed Economic System Allocation of Resources: Government plans where resources go for key industries Role of Government: Government directs its plans for the biggest, key industries only

Mixed Economic System Goals: Equal distribution of income Methods: High Taxes Characteristics: Limited competition, lots of government planning, many services paid for by government: health, education, welfare Current World Examples: England Germany Sweden Egypt France Italy Hungary Mexico Political System: Socialist democracy, political parties voted in

Mixed Economic System Strengths and Weakness vary by country Generally these countries experience the same ups and downs that market economies like the United States experience