Economic Systems
Why Economic Systems? Nations use economic systems to determine how to use their limited resources effectively. Nations use economic systems to determine how to use their limited resources effectively. Answer the 3 economic questions. Answer the 3 economic questions. Different types of Economic Systems Different types of Economic Systems Traditional Economy Traditional Economy Market Economy (free enterprise) Market Economy (free enterprise) Command Economy Command Economy Mixed Economy Mixed Economy
Traditional Economy Found in rural, under- developed countries– Found in rural, under- developed countries– EX: Eskimos & Native American tribes EX: Eskimos & Native American tribes Customs answer the 3 economic questions Customs answer the 3 economic questions Definition: Do what we have always done Definition: Do what we have always done Advantages: people have specific roles; security Disadvantages: Technology is not used; difficult to improve, no growth
Market Economy (Free Enterprise) Also called a Free Market Economy or Free Enterprise Economy Also called a Free Market Economy or Free Enterprise Economy Producers and consumers answer the 3 economic questions Producers and consumers answer the 3 economic questions Definition: free to buy and sell what we want Definition: free to buy and sell what we want Example :a true market economy does not exist Advantage—Growth and progress is stressed Disadvantage—division between rich and poor, no regulations
Command Economy The government answers the 3 economic questions The government answers the 3 economic questions Examples: China and Cuba Examples: China and Cuba Definition: An economic system in which the government is the sole decision maker, the people do not have a say Definition: An economic system in which the government is the sole decision maker, the people do not have a say Advantages Guarantees equal standard of living for everyone Less crime and poverty Disadvantages Minimal choices No incentive to produce better product or engage in entrepreneurship Also known as a Centrally Planned System
Mixed Economy Combination of a market and a command economy (Laissez Faire) Combination of a market and a command economy (Laissez Faire) Government takes care of people’s needs Government takes care of people’s needs Marketplace takes care of people’s wants. Marketplace takes care of people’s wants. Most nations have a mixed economy: EX: United States, England, Australia Advantage—balance of needs and wants met by government and in marketplace Disadvantage— citizens have to pay taxes