Economic Systems Command, Market, and Traditional

ECONOMIC SYSTEM Definition: The way in which a country manages the production and distribution of goods and services.

All economic systems must answer 3 basic economic questions.

1. WHAT TO MAKE?

2. HOW TO MAKE IT?

3. WHO GETS IT?

WHAT ARE THE THREE MAJOR ECONOMIC SYSTEMS? 1. Traditional 2. Command 3. Market

1.TRADITIONAL ECONOMIC SYSTEM What is produced and what each person does is determined by birth. A person might be expected to do what his father did. The share of wealth is determined by custom or one's position in society. There are traditional economies that exist today in parts of Asia, the Middle East, Africa and Latin America.

2. COMMAND ECONOMIC SYSTEM The individual has very little say as to how the basic economic questions are answered. What is produced and what each person does might be determined by a small group of individuals. The product might be the property of the small group in control or shared with others. North Korea is an example of a command economy (most have gradually moved toward a limited market economy).

3. MARKET ECONOMIC SYSTEM What is produced and what each person does is based on the activity within the market. Buyers and sellers decide for themselves what goods and services will be produced. Individuals decide for themselves the answers to the basic economic questions. The United States is a market economy.

Now that you know the three major economic systems, REMEMBER that no system is perfect and no system exists by itself. Most economic systems are classified according to the way most economic activity is organized. Most economies are MIXED.

CHECK YOUR UNDERSTANDING Write a definition for each of the following economic systems: TRADITIONAL, COMMAND, MARKET Answer: 1.How does the individual benefit from a market economy? 2.Why don’t people have much opportunity within a traditional economy? 3.How might an individual benefit from a command economic system? 4.What are the basic questions that all economic systems must answer?

Summary Create a Venn diagram to compare and contrast the similarities and differences between a COMMAND and MARKET economy. As you complete your Venn diagram, keep in mind the three basic economic questions that ALL economic systems must answer –WHAT TO MAKE ? –HOW TO MAKE IT ? –WHO GETS IT ?