1. The Three Economic Questions And The Four Economic Systems

2. Every society must answer three economic questions:
What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?

3. Four Economic Systems
Traditional
Command
Market
Mixed

4. Traditional Economic System: Ritual, Habit, and Custom
The basic economic questions are answered: by doing things the way they have always been done.

5. Advantages
Sets forth certain economic roles for all members of the community
Stable, predictable, and continuous life
Revolves around family
Communities stay relatively close and small

6. Disadvantages
Discourages new ideas, new technology, and new ways of doing things
Stagnation and lack of progress
Lower standard of living – lack modern conveniences
Have few mechanisms in place to deal with disasters such as floods, drought

7. Command or Centrally Planned Economic System
Basic economic questions of what, how and for whom to produce are answered: by a central planning authority.

8. Advantages Central authority is in command of the economy
Capable of dramatic change in a short time
Little uncertainty over choice of career, where to work, or losing job
Many basic education, public health, and other public services available at little or no cost

9. Disadvantages Does not meet wants and needs of consumers
Lacks effective incentives to get people to work
Requires large bureaucracy, which consumes resources
New and different ideas discouraged, no room for individuality

10. Problems of a Centrally Planned Economy
Centrally planned economies face problems of poor-quality goods, shortages, and diminishing production.

11. Market Economic System: (Free Market, Capitalism)
Buyers and Sellers: Dollars “Vote”
The Basic economic questions are answered: by having buyers and sellers make economic decisions.

12. Advantages Overtime, can adjust to change
Individual freedom for everyone
Little government interference
Decentralized – not concentrated in the hands of a few
Variety of goods and services
High degree of consumer satisfaction

13. Disadvantages
Rewards only productive resources; does not provide for people too young, too, old, or too sick to work
Workers/businesses face uncertainty as a result of competition and change: no guarantee for job
Does not produce enough public goods such as defense, universal education, or health care

14. Mixed Economic System
The basic economic questions are answered: by combining traditional, state-run, and private enterprises.

15. Mixed Economic System: No real disadvantages
A combination a traditional, market, and command economies.
Need government intervention – create laws protecting property rights and enforcing contracts
Governments provide for national defense, roads and highway systems, conservation, environmental protection, education
Key is to balance control and freedom

16. The degree of government involvement in the economy varies among nations, and can affect its society.
Continuum of Mixed Economies
Centrally planned
Free market
Iran
North Korea
Cuba
China
Russia
Greece
Peru
United States
South Africa
France
United Kingdom
Botswana
Canada
Singapore
Hong Kong

17. Essential Questions/Ideas
How do societies provide the necessary items for their people?
Who gets to decide?
Which economic system fails to worry about its people’s wants?
How does each system assign roles to play in the economy?
When should government intervene in the economy?
Which economic system do you think is most beneficial for everyone?
Why?