1. Dr. T. D. Mitchell Bonneville High School Idaho Falls, Idaho
Economic Systems
Economics: concepts and choices, Holt McDougal
Dr. T. D. Mitchell
Bonneville High School
Idaho Falls, Idaho

2. Introduction to Economic Systems
Objectives
Identify the three main types of economic systems.
Understand how a traditional economy operates, including its advantages and disadvantages.
Analyze how modern forces are changing traditional economies.
Economics: concepts and choices, Holt McDougal

3. Traditional Economy
A system in which families, clans, or tribes make economic decisions based on customs and beliefs.
Economics: concepts and choices, Holt McDougal

4. Command Economy
In a command economy, the government decides what goods and services will be produced, how they will be produced, and how they will be distributed.
Economics: concepts and choices, Holt McDougal

5. Market Economy
A market economy is based on individual choice, not government directives. Consumers and producers drive the system.
Economics: concepts and choices, Holt McDougal

6. Characteristics of a Traditional Economy
Trait1: Advantages and Disadvantages
A traditional society produces what best ensures its survival. The methods of production are the same they have always been.
Little disagreement over economic goals and roles.
Resists change; less productive.
No choice in jobs members may be better suited to do.
Economics: concepts and choices, Holt McDougal

7. Characteristics of a Traditional Economy
Trait 2: Under Pressure to Change
Around the world, traditional economies are under pressure to change.
Media has bombarded traditional societies with images of what the world outside there group.
Economics: concepts and choices, Holt McDougal

8. Comparing Economic Systems
Communism
Socialism
Market System
Who owns resources?
Government
Government owns basic resources
All resources privately owned
How are resources allocated?
Government planners decide how resources are used
Government planners allocate basic resources
Market forces allocate resources
What role does government play?
Government makes all economic decisions
Government makes decisions in the basic industries
Government’s role limited
Economics: concepts and choices, Holt McDougal

9. Command Economy Centrally planned Impact of Command Economies
Government planning
Socialism and Communism
Authoritarian
Impact of Command Economies
Economics: concepts and choices, Holt McDougal

10. Signs of Economic Reform in North Korea
Economics: concepts and choices, Holt McDougal

11. A New View of Economics
Became involved in radical politics in college.
Traveled to different countries, landing in London.
Became aware of factory worker struggles.
Whole industrial system was based on exploitation of workers.
Believed conflict between management and labor was inevitable.
Communism eventually collapsed in the 1990s. And fell into disfavor.
Economics: concepts and choices, Holt McDougal

12. Market Economy Self-interest Private property rights Market
Economics: concepts and choices, Holt McDougal

13. Fundamentals of a Market Economy
Private Property
Buyers and sellers are free to own private property.
Limited Government
Buyers and sellers must be free to operate with minimal government intervention
Voluntary Exchange
When buyer and seller agree to do business together, each believes that the benefits outweigh the costs.
Competition
Consumer Sovereignty
Sellers are free to attempt to get the business of others by offering the best deal.
Specialization
Buyers and sellers are able to concentrate their efforts in areas where they have an advantage.
Economics: concepts and choices, Holt McDougal

14. The Circular Flow Model
Product Market
Households
Factor Market
Businesses
Government
Business Revenue
Consumer Spending
Sell Goods and Services
Buy Goods and Services
Taxes, Regulations, Laws
Payments for Resources
Safety Net, Public Goods
Income from resources
Buy Productive Resources
Sell land, labor, capital, entrepreneurship
Economics: concepts and choices, Holt McDougal

15. Circular Flow of Market Economies
Product markets
Factor markets
Circular flow
Economics: concepts and choices, Holt McDougal

16. Impact of Market Economies
Advantages
Economic and political freedom
Consumer choice
Freedom to develop interests and talents
Little government control
profits
Disadvantages
No mechanism for providing public goods and services
No safety net
Problems without government regulation
Industrial consequences
Economics: concepts and choices, Holt McDougal

17. Modern Economies Life in a mixed economy Types of mixed economies
U. S. – driven by private ownership and markets
Europe – government more heavily involved
Sweden – government owns about one-third of all Swedish companies
Economics: concepts and choices, Holt McDougal

18. Trends in Modern Economics
Trend 1: Changes in ownership
Nationalize
Privatize
Trend 2: Increasing global ties
Global economy
Cross-border business partnerships
Economics: concepts and choices, Holt McDougal

19. E-Commerce Competition
Economics: concepts and choices, Holt McDougal

20. Final Thought
Ask five economists and you'll get five different answers - six if one went to Harvard. Edgar Fiedler
Economics: concepts and choices, Holt McDougal