1. Economies in Transition
The International Economy

2. Economic System command traditional market What products to produce
How to produce
For whom to produce
command
traditional
market

3. Traditional Economy
A system that answers the What?, How?, and For whom?: the way they have always been answered
Strength: minimizes friction and enhances cooperation
Weakness: restricts individual initiative and economic growth

4. Command Economy
A system that answers the What?, How?, and For whom?: by central authority through planners and a rationing system
Strength: everyone receives necessary goods regardless of ability to contribute to society
Weakness: shortages, surpluses, inferior products

5. Market Economy
A system that answers the What?, How?, and For whom?: by the interaction of the forces of supply and demand
Strength: resources are efficiently used to provide a wide variety of products at the lowest prices
Weakness: competition results in people who are very wealthy and very poor

6. The Market Economy: Adam Smith
Invisible hand: the best interest of a society are served when individual consumers and producers compete to achieve their own private interests

7. Mixed Economy
A system that answers the What?, How?, and For whom?: by a mixture of traditional, command, and market systems
Most real world systems are mixed

8. Capitalism Private ownership of factors of production
Businesses make product and pricing decisions
Decentralized decision-making through markets
CONSUMER SOVEREIGNTY: Freedom of consumers to cast their dollar votes to buy or not buy at prices determined in a competitive market

9. Socialism & Communism Karl Marx Socialism Communism
Public ownership of factors of production
Centralized decision making by the government
Communism
Stateless, classless economic system in which all the factors of production are owned by the workers, and people share in production according to their needs
The highest form of socialism that should be strived for
Karl Marx