THREE TYPES OF ECONOMIES 13.3

13.3 THREE TYPES OF ECONOMIES Vocabulary: Traditional Economy Command Economy Market Economy Profit Invest Free Enterprise Capitalism Mixed Economy

13.3 Main Idea: ********** Various types of economic systems include traditional, command and market economies …

TRADITIONAL ECONOMY … Where basic economic decisions are made according to long-established patterns of behavior that are unlikely to change …

TRADITIONAL ECONOMY … (CONT.) What to produce – communal process based on tradition How to produce – dictated by custom Who gets what is produced – based on tribal role or number in a family Who owns the resources - own land, tools and labor, some freedom in day-to-day decisions but little concerning tribal economy This results in little change in economy

TRADITIONAL ECONOMY … (CONT.) Customs are passed on generationally Family is the basic unit in the economy Societal - all work together for the common good Usually small – needing fewer resources Very few worldwide

COMMAND ECONOMY... the government or a central authority owns or controls the factors of production and makes the basic economic decisions

COMMAND ECONOMY (CONT.) Government controls the main parts of the economy (transportation, farms, banks, communication, manufacturing, natural resources, …) Gov’t sets wages, prices and who works where Gov’t makes major economic decisions Going on since the pharaohs

COMMAND ECONOMY (CONT.) Gov’t Decision Making – Central planning 1.Secure resources 2.Secure work force  Consumers have 1.Little power 2.Few choices 3.Limited supply of goods

COMMAND ECONOMY (CONT.) Who gets what: 1.Determined by goals and values … 2.Greedy dictator takes most (if not all) Promotes his family and friends to wealth Corrupt 3.Goal orientated – all/most get some, regardless of productivity

MARKET ECONOMY … is a system in which private individuals own the factors of production and are free to make heir own choices about production

MARKET ECONOMIES (CONT.) Economic decisions made through a bargaining process Market -> a place where goods and services are exchanged In a market, the value of what you offer sets the value of what you can get No one person controls/runs the market Each takes part in running it freely making economic decisions Variables, outliers

MARKET ECONOMIES (CONT.) Decisions Making by Individuals Free to start a business Free to control factors of production Free to earn a profit/go broke Free to buy more goods and services to expand Keep in mind - Market sets the prices

MARKET ECONOMIES (CONT.) COMPETITION: 1.Compete to satisfy customer wants 2.Producers compete to suppliers 3.Workers compete for jobs 4.Customers compete for products 5.Business people compete for resources

MARKET ECONOMIES (CONT.) Profit seeking Profit = is the difference between total co$t of production and the revenue$ received from buyer$

MARKET ECONOMIES (CONT.) to increase your profits, you may have to-> Invest – to use your money to help a business get started or grow, with the hope that the business will earn a profit in which you share

MARKET ECONOMIES (CONT.) Free Enterprise The system in which individuals in a market economy are free to undertake economic activities with little or no government interference

MARKET ECONOMIES (CONT.) Capitalism … a system in which people make their own decisions about how to save resources as capital and how to use their capital to produce goods and provide services. Capital is privately owned in a market economy.

MARKET ECONOMIES (CONT.) Modern Day Economies: MIXED ECONOMY is one that is a mixture of the three basic systems Many countries (if not most) practice a combination of traditional, command and market economies

THE ECONOMY OF CHINA ) Prior 1980 –total command One Party/ Central planning/Central control F of P Set goals for; 1.Production of goods 2.Distribution of resources s  Added mixed economy ideas of 1.Free enterprise Today huge economic growth

THE ECONOMY OF THE USA Considered a “Market Economy” Free enterprise Individually/privately owned businesses and F of P Compete 1. For resources 2. For services 3. F of P 4. Distribution 5. Capital / Financial Capital

THE ECONOMY OF THE USA (CONT.) GOVERNMNET CONTROL (SOME OF THE MANY EXAMPLES): 1.EDUCATION 2.MAIL DELIVERY 3.ARMED FORCES 4.TRANSPORTATION INFRASTRUCURE/REGULATION 5.SAFETY REGULATION 6.ECONOMIC REGULATION 7.TAXATION 8.SOCIAL ASSISTANCE THESE ARE ELEMENTS OF A COMMAND ECONOMY, HENCE, A MIXED ECONOMY

SOCIOECONOMIC STRATIFICATION (SES) India – by class, culture and $$$ China – Party affiliation USA – by class, affiliation, culture, ethnicity (for some) and income Previous Soviet Block – Party Membership Lottery Winners/Sport Super Stars Affect in the USA – Polarizes societies Protects interests Solidifies bases