1. Economic Systems

2. The 3 Economic Questions
What?
How?
Who?

3. Traditional Economies
Based on custom

4. Little innovation or change Subsistence standard of living

5. Command (Socialism, Communism)
Public (govt) ownership of land, capital
Central economic planning
Distribution of resources
Output decisions
Wage and price controls

6. Weaknesses of Command Economies
Failure to achieve allocative efficiency
Lack of incentives (profit motive)
Large bureaucracy for economic planning
Those with new or unique ideas are stifled

10. Market (capitalism, free enterprise)
Economic incentives – profit motive
Voluntary exchange
Economic freedom
Private property rights (including intellectual property)—protected by legal contracts
Self-interest
Competition (including right to fail)—the “invisible hand”
Creative destruction (Joseph Schumpeter)—new products and production methods destroy old products, firms
Limited government role

11. Weaknesses of Market Economies
Failure to achieve economic security
Failure to achieve equity
Market failures—failure to produce the right amount of certain goods and services, or failure to allocate resources to the production of certain goods and services

12. Mixed economies Market system dominates: Australia US Switzerland
Hong Kong

13. Market systems with extensive social welfare programs:
Sweden
Norway
Germany
Netherlands

14. Extensive government intervention in the market:
North Korea
Cuba