ECONOMIC SYSTEMS

Different Economic Systems – Economic Questions  WHAT IS ECONOMICS? The study of how resources are managed in the production, exchange, and use of goods and services.  Four Types of Economic Systems – 1. Command, 2. Traditional, 3. Market, 4. Mixed

Different Economic Systems – Command Economic System-  The Government decides what goods to produce.  The government decides how goods will be produced  The government decides how they will be distributed.  Today, there are few Command Economies.  Perhaps the only examples are the communist countries of Cuba and North Korea.

Different Economic Systems – Traditional Economic System-  A system in which social roles and culture determine how goods are made, sold, and bought.  Families, clans or tribes follow customs to meet basic needs.  All economic systems have some form of traditional system in them, for example most young people go in to same type of employment as their parents.

Different Economic Systems – Market Economic System-  Economic system based on individual choices and voluntary trade  Also known as a free enterprise system  Individuals and businesses make economic decisions  The market determines the prices and wages  People can choose to enter into a business, or they may choose to sell their labor to anyone they want.  Consumers are free to spend their money as they wish.

Different Economic Systems – Mixed Economies –  A mixed economy has features of traditional, command, and market economies.  Both the central govt. and the market forces make economic decisions.  Most countries today have a mixed economy.  Even though the market economy is characterized by competition and freedom, the competition is not perfect and the freedom is not unqualified.  Countries with mixed economies try to use the best parts of each system.

Different Economic Systems – Mixed Economies –  Businesses may still decide what is made, how much things cost, and how much people are paid.  The government acts to limit harm that might come from an uncontrolled market economy.  For example, the government might establish a minimum living wage. (The U.S. has minimum wages set.)  The economy of the U.S. is a mixed economy, but it is still heavily based on the market system. The government plays a smaller role in the U.S. mixed economy.

Different Economic Systems – Mixed Economies –  Some decisions regarding production. Such as the building of roads, schools, and municipal buildings, are made by federal, state, and local governments.  The use of labor in and outside the armed services is determined in part by military authorities.

Different Economic Systems – Mixed Economies –  Regulated public utilities exist along with unregulated industries; monopolies stand side by side with highly competitive firms; giant corporations compete with small, single proprietorships; the government regulates some industries and not others; and government operations occasionally compete with private industry.  Since we have many types of competition and the economy contains both free and regulated markets, it is appropriate to refer to this type of economy as a mixed economy.

Examples of U.S. Mixed Economy  A central United States bank.  Many cities provide public transit as competition against private options, an indirect form of price control.  The United States Postal Service is a public mail service that exists alongside private options such as FedEx or UPS.  Most road networks are government built and maintained, although private citizens and companies are allowed to "sponsor" a highway or road to ease some of the financial strain.

Examples of U.S. Mixed Economy  Public and private schools are available for children.  Waste collection and treatment are usually provided as a service by the local government, though most local governments pay private companies to perform the service.

Examples of U.S. Mixed Economy  State and local governments provide guaranteed police and firefighting support, though private security forces are available.  Intercity passenger rail (Amtrak) is a nationalized industry, as are many local trains.  American airports are government operated but all American airlines are private.  The FDA must test and approve a drug or chemical before it is allowed to be sold on the market.

Examples of U.S. Mixed Economy  State and Federal governments have minimum wage laws, though several occupations are exempt from the rules, such as wait-staff, who make up most of their income from tips.  All Americans over the age of 65 are eligible for Medicare, a public health insurance option.  Most agriculture has been subsidized.  State and local governments provide public utilities such as water, waste, electricity, and internet access.