1. \
Economic Systems

2. Objectives Market Command Traditional
You will demonstrate knowledge of basic economic concepts and structures by comparing the characteristics of:
Market
Command
Traditional

3. Warm Up
We’ve discussed the fact that the American capitalist system is based on free market principles.
What countries can you list that have different economic systems than ours?
How would you describe these systems?

4. Factors of all Economic Systems
A variety of methods can be used to allocate goods & services.
People acting individually or collectively through government choose which methods to use to allocate goods & services.
People in all economies must answer three basic questions:
What goods and services will be produced?
How will these goods and services be produced?
Who will consume them?

5. Three Basic Economic Questions
What goods and services are to be produced?
Must ask this due to scarcity of resources
Don’t have enough to produce everything
Do you chose what people need or what is profitable?

6. Three Basic Economic Questions
How are goods and services to be produced?
Large factories or mom and pop shops?
Corporate farms or family farms?
Cooperatives?

7. Three Basic Economic Questions
Who will consume these goods and services?
Who gets what is the toughest of the questions.
How do you decide who gets it?
Base it on need? Base it on wealth? Base it on first in line? Base it on equality or fairness?
How/Who to decide who
is in need or what is fair?

8. Economic Systems Based on Economic Goals
6 Possible Economic Goals
Can choose to achieve one or more; not all 6.
Economic Freedom – all people have full freedom of what to make and buy or sell without government interference
Usually a goal, but tough to fully achieve
People want protection from violators; government expected to do this.

9. Other Economic Goals
Economic Efficiency – economy strives not to waste ANY of its resources
Includes all natural and human resources
Has a goal of FULL EMPLOYMENT – no waste.
Economic Equality – strives to give all in society an equal amount
Problems arise with what is equal?
Does everyone get a little?
Do the rich or the poor receive more?

10. Other Economic Goals
Economic Growth – strives to produce more and better goods
Via science, technology, innovation, entrepreneurship.
Usually a goal of all economic systems
Economic Security – strives to support those in society who cannot provide for themselves
Includes the young or old, sick or dying, etc…
Economic Stability – strives to keep the economy stable and running well
Keeps things predictable; having goods, water, electricity, jobs and prices relatively consistent

11. 3 Basic Economic Systems
Traditional Economy
Oldest system
Based on the traditions and customs of a group of people – who hunts, gathers, etc.
Often found in small clan societies

12. 3 Basic Economic Systems
Command Economy
Found in declining # of countries
Decisions by the State
Controlled economy/populace
Similar economic system found in ancient civilizations
Egyptian pharaohs commanded what to grow and what to do with taxes, people, slaves, etc.

14. Capitalism, Socialism, & Communism
Born out of the Industrial Revolution
People become rich off new machines; poor workers working in terrible conditions
Socialism - created to help the workers
Idea that society owns all property – equality
Spreads through USSR and other countries
Communism – society owns all property and wealth -- communal ownership
Struggles due to use of a command economy
Government tries to control production & distribution of millions of products
Unable to do so like free markets can; resources wasted
No incentive to work harder so quality of products is poor

15. 3 Basic Economic Systems
Market Economy - AKA Capitalism, free market, free enterprise
decisions by individual consumers – no one tells anyone what to make, all choices are made voluntarily

16. Characteristics of Market Economies
Private ownership of resources - provides incentives for owners of resources to weigh the value of present uses against value of conserving those resources for future use.
Competition among businesses - tends to lower prices and raise quality.
Prices determined in marketplace through interaction of supply & demand

17. Characteristics of Market Economies (cont.)
Consumer Sovereignty - concept that consumers’ dollars “vote” -- tell businesses what to produce.
Profit Motive - incentive for businesses to produce what consumers demand & to produce those goods & services efficiently (keeping costs down) in hopes of earning greater profit.
Limited government - acts as referee
Protecting consumers, workers, the environment
Competition in the marketplace.

18. U.S. Economic System

19. Mixed Economies
The U.S. is primarily a market economy; however, since it has elements of government involvement (e.g., taxation & regulation) it is sometimes called a mixed economy.
Hong Kong is the freest of the market economies in the world…
Most of the world’s economies today are mixed economies and exist on a continuum between market and command.
Some lean toward market; others lean toward command.

20. Governments Role in Economy
Gov’t needed to set up institutions for markets
Legal system, currency, labor laws, etc.
Also limits sale of dangerous products– the case for regulation.
Certain foods, drugs, cosmetics, etc.
Gov’t also provides services that would not usually be available due to price
Public works – sewers, roads, highways, etc.
Each country different in what they provide to society
Role of government determines level of freedom

21. Government impacts flow of goods & services
Employs large # of workers in US; purchases largest # of goods
Government collects taxes to purchase goods
Pays wages to employees for services
Pays for services like Soc. Sec.
Referred to as “transfer payments” -- Transfers money from one household to another
Gov’t involvement places countries on the Mixed Economy Continuum
Explains the level of economic freedom of each country

24. Where are the people in each cartoon?
Who or what decides what consumers get in Cartoon A? Cartoon B? B
What advantages and disadvantages do you see represented in Cartoon A? Cartoon B?
Which store would you prefer to shop in, and why?

25. Matrix of Economic Systems
What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
Traditional
Market

26. Matrix of Economic Systems
What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/central authority decides.
Traditional
Custom and tradition dictate
Market
Consumers decide what will be produced by casting their “dollar votes.”

27. Matrix of Economic Systems
What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/
central authority decides.
Traditional
Custom and tradition dictate
Custom and tradition dictate Mainly agricultural and labor is divided along gender lines
Market
Consumers decide what will be produced by casting their “dollar votes.”
Producers choose the most profitable method of production.

28. Matrix of Economic Systems
What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/
central authority decides.
Traditional
Custom and tradition dictate
Custom and tradition dictate Mainly agricultural and labor is divided along gender lines
Market
Consumers decide what will be produced by casting their “dollar votes.”
Producers choose the most profitable method of production.
Goods and services are consumed by those who are willing and able to pay the market price.

29. Matrix of Economic Systems
What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/
central authority decides.
Economic Equity and Security
Traditional
Custom and tradition dictate
Custom and tradition dictate Mainly agricultural and labor is divided along gender lines
Economic Stability and Security
Market
Consumers decide what will be produced by casting their “dollar votes.”
Producers choose the most profitable method of production.
Goods and services are consumed by those who are willing and able to pay the market price.
Economic Freedom and Efficiency

30. Matrix of Economic Systems
What to produce?
How to produce
For Whom to produce
Goals
Country Examples
Command
The government/
central authority decides.
Economic Equity and Security
China, Vietnam, Cuba, North Korea
Traditional
Custom and tradition dictate
Custom and tradition dictate Mainly agricultural and labor is divided along gender lines
Economic Stability and Security
Ethiopia, Somalia, Afghanistan
Market
Consumers decide what will be produced by casting their “dollar votes.”
Producers choose the most profitable method of production.
Goods and services are consumed by those who are willing and able to pay the market price.
Economic Freedom and Efficiency
United States*, Canada, Australia, Hong Kong, Ireland

31. Directions: Label the following countries on the map
Directions: Label the following countries on the map. You may abbreviate. Then, pick a color to represent command economies, market economies, and traditional economies. Create a key below the map and color in the countries you labeled with the color that represents their economic system.
(Canada, United States, Hong Kong, Ireland, Australia, Ethiopia, Somalia, Afghanistan, China, Vietnam, North Korea, Cuba)
Canada
Ireland US
North
Korea
China
Cuba
Afghanistan
Hong Kong
Ethiopia
Vietnam
Somalia
Australia

32. The Flow of Goods and Money
Markets work well due to circular flow
One person’s output is another’s input
Flow goes between households and firms
Households include a person or group of people
Firms are businesses
Land, labor & capital are traded for wages
Goods are traded to people for money

33. Two types of markets in circular model
Product market – deals with the goods and services created by firms which are bought by the households
Factor market – deals with factors given up by households and paid for with wages or purchases of land
Considered factor payments
All these things work without intervention because people are worried about their own interest
People work for money to buy goods, firms build products to sell them for profit

34. Use the picture below and give an example of each of the arrows that would represent what you or your parents gain/ lose in this model.

35. Higher Level Thinking
How does the economic system/form of government impact income inequality?
Is one form better than another?
You have now learned about the strenghts and weaknesses of the 3 economic systems.
After looking at the following videos, please respond to the writing assignment.

36. Homework – writing assignment
Exit Ticket
What are the three basic economic questions?
How does each type of economy answer the three basic economic questions?
_________________________________________
Homework – writing assignment