1. Economic Systems
Today’s Objective: To be able to differentiate between the three economic systems and their characteristics.

2. Types of Economic Systems
How society uses resources to satisfy people’s wants
Three basic systems:
Traditional
Command
Market economies

3. Economic Systems Read through the economic systems sheet
With a partner list 3 examples of elements of each type of economic system that we find in the US economy
Then list the pros and cons of each system

4. Types of Economic Systems
Traditional Economy
centers on families, clans, or tribes
decisions are based on customs and beliefs
Good of the group always comes before individual desires

5. Characteristics of Traditional Economies
Advantages and Disadvantages
Advantages: little disagreement over goals, roles
methods of production, distribution determined by custom
Disadvantages: as result of resistance to change, less productive
do not use new methods; people not in jobs they are best suited for
low productivity results in low standard of living

6. Types of Economic Systems cont.
Command Economy
(centrally planned economy) government makes economic decisions
determines what to produce; how to produce; who gets products
determines who is employed, work hours, pay scales
Wants of individual consumers rarely considered
Government owns means of production: resources and factories

7. Command Economies Today
No pure command economies today
Some economies still have mostly command elements

8. Command Economies Today
North Korea
Communist North Korea used resources for military, not necessities
built large army; nuclear weapons program
In 1990s and early 2000s, millions died of hunger, malnutrition
In 1990s, production decreased and economy shrank
Since 2003, some market activity allowed

9. Command Economies Today
Impact of Command Economies
In theory, command systems fair to everyone; In practice, many disadvantages
central planners do not understand local conditions
workers have little motivation to be productive or conserve resources
artificially low prices lead to shortages
people sacrificed to carry out centrally planned policies

10. Types of Economic Systems cont.
Market Economy
driven by choices of consumers and producers
consumers spend money, go into business, sell their labor as they wish
producers decide how to use their resources to make the most money
Consumers, producers benefit each other when they act in self-interest

11. Fundamentals of a Market Economy
1: Private Property and Markets
2:Limited Government Involvement
Laissez faire—government should not interfere in economy
Capitalism—system having private ownership of factors of production
says producers will create products consumers demand
Actual market economies all have some government involvement

12. Fundamentals of a Market Economy
3: Voluntary Exchange in Markets
Voluntary exchange—traders believe they get more than they give up
4: Competition and Consumer Sovereignty
Consumer sovereignty—buyers choose products, control what is produced
Competition controls self-interested behavior
sellers offer low price or high value to please consumers, make profit

13. Fundamentals of a Market Economy
5: Specialization and Markets
Specialization—people concentrate their efforts in the activities they do best
encourages efficient use of resources
leads to higher-quality, lower-priced products

14. Impact of Market Economies
Advantages
Individuals free to make economic choices, pursue own work interests
Less government control means political freedom
Locally made decisions mean better use of resources, productivity
Profit motive ensures resources used efficiently, rewards hard work
resulting competition leads to higher-quality, more diverse products

15. Impact of Market Economies
Disadvantages
Pure market economy has no way to provide public goods and services
Does not give security to sick or aged
During U.S. industrial boom, business owners rich, workers low pay
Businesses did not address problems caused by industrialization
Industrialized societies adopt some government control of economy

16. Today’s Mixed Economies
Types of Mixed Economies
U.S. basically has market system
European countries greater mix of market and command elements
France—government controls some industries; provides social services
Sweden—state owns part of all companies; lifelong benefits, high taxes
Namibia—traditional; state supports market, foreign investment

17. Campus Parking Options
Leave things as they have been
First-come, first-served
Markets and a price system
Democracy
Random choice

18. Traditional, Command, Market, Mixed?
An economic system heavily influenced by habits, customs, and religious beliefs.  
Government directly influences and vastly controls business practices due to ownership of natural and capital resources.
Privately owned factors of production (i.e., factories and machines).
Prices are influenced by supply and demand.
An economic system that combines elements of all the other basic systems.
Characterized by very low unemployment rate.
Considered synonymous with a capitalistic economy.
Individual freedom is limited (roles of individuals are static from generation to generation).

19. Dreaded Disease Read through the dreaded disease scenario
With a partner answer the questions
Keep in mind what we’ve discussed about economic systems and opportunity cost

20. Dreaded Disease What would be the “market” solution to the problem?
Benefits?
Opportunity cost?
What would be the command solution to this problem?