1. Traditional - Command – Market - Mixed
Economic Systems
Traditional - Command – Market - Mixed

2. Economic Systems - Traditional
An economic system in which people produce only what they must have in order to exist.
Oldest and simplest form of an economic system.
Tribal – Family Units
Rely on habit, tradition, or ritual.
(work divided among gender lines)
Slow to adapt to new ideas or technology
Lack modern conveniences
Low standard of living

3. Economic Systems Two General Economic Systems: Market Economy
An economic system in which the questions of what, how, and for whom goods will be produced are answered by individuals and businesses in the marketplace.
Command Economy (Centrally Planned)
An economic system in which all or many of the means of production and distribution are owned and controlled by the government.

4. Economic Systems
NOTE: No country has a pure Market or pure Command Economy….
ALL countries are mixed.
So, where does any given country fall on the continuum?
Market
Command ? ? ?

5. Economic Systems
How do we determine, or measure, the type of economic system a country follows?
Three Questions are answered:
What goods and services are produced?
How should these be produced?
For Whom should these be produced?

6. Economic Systems
Market Economy

7. Economic Systems - Market
1st Question
What goods should be produced?
Consumers decide
Private businesses emerge to meet consumer’s wants and needs.
ADVANTAGE: MARKET SYSTEM

8. Economic Systems - Market
2nd Question
How should goods be produced?
Businesses decide.
Decisions on hiring, wages, and production methods, all left up to owners. Companies become more efficient as they must compete to become successful.
Employment not guaranteed as owners look to create efficiencies (unemployment volatile)
ADVANTAGE: MARKET SYSTEM
DISADVANTAGE: MARKET SYSTEM

9. Economic Systems - Market
3rd Question
For Whom should goods be produced?
For whomever can afford it.
If you do not have money you cannot buy the good. TOO BAD.
ADVANTAGE: MARKET SYSTEM
Nobody is entitled to goods or services. To be able to buy goods, people are motivated to work and earn money.
DISADVANTAGE: MARKET SYSTEM

10. Economic Systems
Command Economy

11. Economic Systems - Command
1st Question
What goods should be produced?
Government decides.
Government chooses what is important to spend their limited resources on.
EX: military vs. furniture.
Thus, shortages will exist for goods that aren’t deemed important by government
DISADVANTAGE: COMMAND SYSTEM

12. Economic Systems - Command
2nd Question
How should goods be produced?
Government decides.
Govt owns the means of production. They employ workers and control industry. They set wages and determine schedules. No bargaining or competition.
DISADVANTAGE: COMMAND SYSTEM

13. Economic Systems - Command
3rd Question
For Whom should goods be produced?
Government decides who gets what and how much.
Every one has basic needs met.
Limits Economic Freedom: Govt runs housing (says where to live), provides food (rations what to eat), provides jobs (determines where to work)
DISADVANTAGE: COMMAND SYSTEM
ADVANTAGE: COMMAND SYSTEM

14. Economic Systems (REVIEW)
Two General Economic Systems:
Market Economy
Command Economy (Centrally Planned)
NOTE: No country has a pure Market or pure Command Economy….all are mixed.
Market
Command

15. Economic Systems - MIXED
All economic systems are Mixed
…but to what degree?
Three Basic Models (philosophies)
Capitalist Model
Socialist Model
Communist Model
Command
Market
Communist
Socialist
Capitalist

16. Capitalism Economic Systems
An economic system that depends on honest, healthy competition between businesses

17. Economic Models – Capitalism
Based on the philosophies of economist Adam Smith
He professes that capitalism is based on
“self-interest” and
“competition”

18. Adam Smith’s
“THE INVISIBLE HAND”

19. “THE INVISIBLE HAND” SELF INTEREST
Adam Smith’s
“THE INVISIBLE HAND”
SELF INTEREST
People (businessmen) are interested in getting money for themselves

20. In a free market system,
how do businessmen get money?
They have to produce a product that people will want to VOLUNTARILY give them money for.

21. video

22. Adam Smith’s
“THE INVISIBLE HAND”
COMPETITION
The struggle among producers for the dollars of consumers

23. What happens when businesses compete?
LOWER PRICES

24. What happens when businesses compete?
LOWER PRICES
BETTER QUALITY

25. What happens when businesses compete?
LOWER PRICES
BETTER QUALITY
NEW PRODUCTS

26. the regulating force In a free market, competition is
as long as businesses are allowed to compete, prices should be low, quality should be high, and new technologies should advance.

27. “GREED IS GOOD” “THE INVISIBLE HAND” SELF INTEREST
Adam Smith’s
“THE INVISIBLE HAND”
SELF INTEREST
“GREED IS GOOD”
COMPETITION
SELF-INTEREST and COMPETITION work together to regulate the market (an economy)

28. Economic Models – Capitalism
Self-Interest is the motivating force in the free market. (people are interested in making money !)
To make money you must produce a product that people will voluntarily give you money for.
Because owners want to make a lot of money they have an incentive to produce what consumers want.
ADVANTAGE: MARKET SYSTEM

29. Economic Model - Capitalism
Competition exists in capitalism as businesses struggle to gain those voluntary dollars from consumers.
As businesses compete for profit, the market is “regulated” as companies have incentive to lower prices and provide new and better products.
ADVANTAGE: MARKET SYSTEM

30. Socialism Economic Systems
A modified command economic system in which government owns the basic means of production and allows private ownership of businesses as well

31. Economic Model - Socialism
Government attempts to reduce the difference between rich and poor. (Classless system – reduce poverty)
Key industries run by government to control prices and prevent mass unemployment (ex. energy, steel, communication, health care, agriculture)
ADVANTAGE: COMMAND SYSTEM
ADVANTAGE: COMMAND SYSTEM

32. Economic Model - Socialism
Socialism also believes that all people should have services provided for them…health care, schooling, pensions.
(Cradle to grave coverage)
To do this, those who make money are taxed heavily to “redistribute wealth” and provide all with services.
Businesses are highly regulated (vacations, hours, minimum wages, etc)
DISADVANTAGE: COMMAND SYSTEM
ADVANTAGE: COMMAND SYSTEM

33. Communist Model Economic Systems
a command economic system in which the government CONTROLS the economic system and does NOT allow private ownership of the means of production and distribution

34. Economic Model - Communism
Based on the philosophies of Karl Marx
Marx argued that all the profit created by the labor of workers ended up in the hands of the capitalists (owners)
He argued that the inevitable result of capitalism was the exploitation of workers and an unfair distribution of wealth.
(large gap between rich and poor)
DISADVANTAGE: MARKET SYSTEM

35. Economic Model - Communism
Government runs everything.
All people are assigned jobs / school
Housing assigned according to need
Medical care is free
Government determines products

36. Economic Model - Communism
This system provides no incentive to work harder to earn more money as the government dictates what you make and were you work.
System fails as there is no competition to improve technology or efficiencies.
Privatization ultimately happens (businesses eventually allowed to be privately owned…not govt owned)
DISADVANTAGE: COMMAND SYSTEM

37. Economic Systems - MIXED
All economic systems are MIXED.
North Korea
Cuba
Russia
China
France
Germany
Japan
United States
Canada
Hong Kong
Communism
Socialism
Capitalism
Command
Market
Economic Freedom Index