1. Economic Systems

2. Economic Systems
Economic System – an organized way of providing for the wants and needs of the people.
All societies use an economic system.
Three major economic systems exist:
Traditional
Command
Market
Most economies combine elements of the three

3. Traditional Economies
Traditional Economies use ritual, habit, or customs to answer the basic questions of WHAT, HOW, and FOR WHOM to produce.
Advantages:
Everyone knows which role to play.
Little uncertainty on what or how to produce.
Customs and traditions determine who is provided for.
Disadvantages:
Individuals generally not free to make decisions.
New ideas discouraged, leading to stagnation and lower standard of living.
Strict rules defined by elders and ancestors.

4. Traditional Economies
There are a few examples of a Traditional Economy, though most are seen as ‘primitive’ or ‘undeveloped’
The Inuit uses a traditional economy, skills and traditions are passed down from parents to children.
The tea plantations of South Asia also run on a traditional economic system.

5. Command Economies
Central authority makes the major decisions in a Command Economy
Advantages:
Can change direction drastically through emphasizing/allocation.
Health and public services available to everyone at little or no cost
Disadvantages:
Basic wants and needs of consumers are ignored.
Economies tend to be unproductive, not producing a good product.
Large decision-making bureaucracy lacks flexibility.
Severely limits private property rights.
Individual freedom and initiative are limited.

6. Command Economies Examples of Command Economies: Soviet Union
Peoples’ Democratic Republic of Korea
China & Russia

7. Market Economies
A Market Economy allows people to make decisions in their own best interest.
Buyers and sellers exchange goods and services in a market.
Market economies are based on capitalism.
Capitalism means that the factors of production are privately owned.

8. Market Economies Advantages: High degree of individual freedom.
Adjusts gradually to change over time.
Small degree of government interference.
Decision making is decentralized.
Large variety of goods and services.
High degree of consumer satisfaction.

9. Market Economies Disadvantages: Not everyone is provided for.
May not provide enough of some basic goods and services.
High degree of uncertainty for workers and employers.

10. Market Economies Examples of Market Economies: United States England
Canada
Mexico

11. Mixed Economies Most economies in the real world are mixed economies.
When political systems are considered with economic systems, the picture gets more complicated.
The type of political system in a mixed economy is less important than the way basic economic decisions are made.

12. Mixed Economies Advantages: Disadvantages:
Provides assistance for some people who might otherwise be left out
In a democratic society, voters use electoral power to affect WHAT, HOW, and FOR WHOM decisions.
In a socialist society, FOR WHOM is addressed more directly by the government.
Disadvantages:
More services mean higher cost for citizens overall.
In socialist countries, availability of services may be limited or quality deteriorates over time.