What kind do you live in?

 Systems that answer the three basic economic questions of what, how, and for whom  Incentives:  An incentive is what motivates people.  Ex. A dog gets a treat to pee outside. The treat is the incentive. It motivates the dog to pee outside. The dog has a reason to pee outside.  An incentive encourages you!

 Traditional System  A native American tribe is an example  Custom and tradition answer the 3 Q  a current day example: a recipe passed down from your grandmother to your mom and now to you

 Command System (Pure Centrally Planned)  Feudal system is a past example…..Kings, lords, serfs  The “government” answers the three questions. The people do not have a say  The problem is that the people have no incentives.

 Pure Market System  A market systems has NO government involvement in the market  The people answer the three basic questions  The incentive to work hard is to make more money….maybe even be rich!  Adam Smith wrote about how wonderful the market system is in the “Wealth of Nations”. He says the incentives it provides motives people and the invisible hand guides the market.

 Mixed systems provide elements of different Economic systems mixed together.  These types of systems are the systems we see in the world today.  All economies in the world today are mixed.  They are: Communism, Socialism, and Capitalism

 Mostly Command with a touch of market.  The three questions are answered by the Government.  The government controls where you can live, what you will do for work, and how much money you will make.  You are taxed at a very high rate  Government provides public healthcare, ed, and retirement  No incentives are present in this system.  Ex. Cuba

 Created at the end of WWII. It is a 50/50 mix of Communism and Capitalism  The three basic Econ Q are answered by the people and the government together.  It does provide incentives, but not as many as Capitalism  It does provide Public services like healthcare, ed, and retirement. Private options available for an extra cost.  Taxed at a rate of about 50%.  Ex. France

 US is an example  It is mostly market b/c the government has a limited role in the economy  There are many incentives to work hard  The people answer the three basic Econ Q  The system is considered mixed b/c the government is present, not making it 100% market.  The people must provide their own health care, education after HS, and retirement.  Taxed at a rate of about 30%

 In the US, Capitalism is also called “Free Enterprise”  Goals:  Economic Freedom  Economic Equity  Economic stability (with prices and jobs)  Economic Growth (standard of living)  Economic Security  Economic efficiency

 Moving from one type of Economic system to another. It is a long process and cannot happen over night.