ECON TYPES OF ECONOMIC SYSTEMS OBJECTIVES: 1. HOW ARE THE 3 BASIC ECONOMIC QUESITONS ANSWERED IN TRADITIONAL, COMMAND AND MARKET ECONOMIES 2. WHAT ARE THE ROLES OF SELF-INTEREST AND INCENTIVES IN A MARKET ECONOMY 3. WHAT TYPE OF MIXED ECONOMIES EXIST TODAY ECON 102 IS DEDICATED TO THE MSA PROGRAM

ECON 102 DICTIONARY TRADITIONAL ECONOMY TRADITIONAL ECONOMY COMMAND ECONOMY COMMAND ECONOMY MARKET ECONOMY MARKET ECONOMY MARKET MARKET INCENTIVE INCENTIVE SELF-INTEREST SELF-INTEREST MIXED ECONOMY MIXED ECONOMY AUTHORITARIAN SOCIALISM AUTHORITARIAN SOCIALISM COMMUNISM COMMUNISM CAPITALISM CAPITALISM DEMOCRATIC SOCIALISM DEMOCRATIC SOCIALISM

3 BASIC ECONOMIC QUESTIONS 1) What to produce 1) What to produce 2) How to produce 2) How to produce 3) For whom to produce 3) For whom to produce

RESPONSE TO THE 3 HOW TO ANSWER THE 3 ECONOMIC QUESTIONS IS DETERMINED BY A NATION’S ECONOMIC SYSTEM. HOW TO ANSWER THE 3 ECONOMIC QUESTIONS IS DETERMINED BY A NATION’S ECONOMIC SYSTEM. There are 4 types of economic systems There are 4 types of economic systems –Traditional –Command –Market –Mixed But in reality all economies are mixed, there are no pure economies today.

TRADITIONAL ECONOMY To answer the 3 basic economic questions, these societies look to the past. To answer the 3 basic economic questions, these societies look to the past. Contemporary economic activities are based on the collection of rituals, habits, laws, and religious beliefs developed by the group’s ancestors. Contemporary economic activities are based on the collection of rituals, habits, laws, and religious beliefs developed by the group’s ancestors.

COMMAND ECONOMY To answer the 3 basic economic questions, these societies look towards government officials (central planners) for answers. To answer the 3 basic economic questions, these societies look towards government officials (central planners) for answers. They have the power to decide what products will be made and how these products are produced. They have the power to decide what products will be made and how these products are produced. Individual have little to no say in this economy. Individual have little to no say in this economy. Pure command does no longer exists, but in the past they had, Middle Ages, Zhou Dynasty, ancient Egypt Pure command does no longer exists, but in the past they had, Middle Ages, Zhou Dynasty, ancient Egypt

MARKET ECONOMY To answer the 3 basic questions, this economy looks to the individual for answers. To answer the 3 basic questions, this economy looks to the individual for answers. People can buy, sell, and produce anything they want. People can buy, sell, and produce anything they want. The free exchange of goods and services is referred to as the market. The free exchange of goods and services is referred to as the market.

Market as a regulator Adam Smith first person to explain market regulation Adam Smith first person to explain market regulation He contended that when the government is not involved in the economy, the market is driven by self-interest---- the impulse that encourages people to fulfill their needs and wants. He contended that when the government is not involved in the economy, the market is driven by self-interest---- the impulse that encourages people to fulfill their needs and wants. The choices we make benefit society as well as us. The choices we make benefit society as well as us. Incentives help motivate people to work harder. Incentives help motivate people to work harder.

MIXED ECONOMIES THIS ONE IS OBVIOUS THIS ONE IS OBVIOUS THREE MAIN CATEGORIES THREE MAIN CATEGORIES 1) Authoritarian Socialism 2) Capitalism 3) Democratic Socialism

Authoritarian Socialism Also called Communism Also called Communism Closest to pure command model Closest to pure command model Government controls nearly all factors of production. Government controls nearly all factors of production.

Capitalism U.S.A. U.S.A. Closet to the market model Closet to the market model Individuals answer all the economic questions Individuals answer all the economic questions Governments may enact regulations, but in a limited fashion Governments may enact regulations, but in a limited fashion Examples??????????????? Examples???????????????

Democratic Socialism Government owns some of the factors of production Government owns some of the factors of production Usually limited to key industries of national concern Usually limited to key industries of national concern Individuals are able to influence the economic planning through the election of government officials Individuals are able to influence the economic planning through the election of government officials