1. Economic Systems

2. You should be able to: Identify the key characteristics of a
Traditional Economy
Command Economy
Communism
Socialism
Free Market Economy
Mixed Economy
Compare the different economic systems
Explain how an economic system may impact our economic decisions

3. What is an economic system?

4. It is a system that determines how to use a country’s limited productive resources.

5. What are the three basic economic questions all countries must answer?

6. What will be produced?
How will it be produced?
For whom will it be produced?

7. What determines what type of economic system a country has?

8. The key factor is the extent of government involvement

9. What are the characteristics of a traditional economy?

10. Traditional Economy
Economic decisions are based on custom and historical precedent (example/pattern/practice)
People often perform the same type of work as their parents and grandparents regardless of ability or potential

11. What are the characteristics of a free market economy?

12. Free Market Economy Private ownership of property/resources
Profit motive (chance to make money)
Competition
Consumer sovereignty (individuals determine through purchases what will be produced)
Individual choice
Minimal government involvement

13. What are the characteristics of a command economy?

14. Command Economy Centrally planned economy
Central ownership (usually the government) of property/resources
Lack of consumer choice
Government determines which goods and services are produced and how they are distributed
Example: Former Soviet Union

15. Communism
All property and resources are collectively owned by a classless society and not individual citizens
“From each according to his ability; to each according to his need,” means that a person’s contribution has no effect on their access to what society produces.
Workers control the means of production; therefore, all share equally in the benefit of success or the consequences of failure.

16. Socialism Government ownership of productive resources
A planned economy
Redistribution of income
Social welfare characterizes a socialist’s society’s goals
Peaceful and gradual extension of government ownership (revolution by ballot rather than bullet)

17. What are the characteristics of a mixed economy?

18. Mixed Economy
Individuals and businesses as owners and decision makers for the private sector
Government as owner and decision maker for the public sector
Government role is greater than in a free market and less than in a command economy

19. What is the most common economic system?

20. It is mixed economies (including the United States)

21. Activity
On the following table, look at the characteristics of each category.
Determine which economic system is described based on the highlighted characteristics.

22. Motivation to Produce:
Round 1
Round 2
Round 3
Choice of Jobs:
Custom Directed
Government Directed
Individual Preference
Motivation to Produce:
High Self Gain
Limited Social Gain
Traditional Incentives
What to Produce:
Whatever the government decides is needed
Whatever is the most popular
Whatever was traditionally produced
For Whom to Produce:
Distributed by custom
Highest bidder
Those declared in need
Name of the Economic System: