1. Ch. 7, Economic Systems

2. Objectives List the three basic economic questions.
List the three types of economic systems.
Explain who answers the economic questions in each type of economy.
Describe the three major features of a market economy.
Explain why most economies are mixed.

3. Marketing Terms traditional economy command economy
centrally planned economy
market economy
consumer economy
capitalism
capitalist economy
free enterprise
private enterprise
free market economy
mixed economy
transition economy

4. #1 Who answers these questions for the U.S. economy?
The Three Questions
The problem of scarcity leads to the three economic questions
What should we produce?
How should we produce it?
Who should get the products?
#1 Who answers these questions for the U.S. economy?

5. What Should We Produce? or
Cattle
Corn

6. How Should We Produce It?or
Computer
Paper and Pencil

7. Who Should Get the Products?or
Commoners
Queen

8. Types of Economic Systems
Economic systems are classified
based on who answers the three questions
Types of economic systems
traditional
command
market

9. Traditional Economy In a traditional economy
elders answer the economic questions
based on traditions

10. Traditional Economy Traditional economies developed
early in human history
Following tradition is seen as a way of
keeping the society safe and healthy
There is pressure on traditional economies to become modern.
Very few traditional economies exist.
#2. What is tradition?

11. #3. How could government control of the economy affect your life?
Command Economy
In a command economy
the national government makes all the economic decisions
Main features
government ownership of land and capital
government control of labor
government control of all economic activity
#3. How could government control of the economy affect your life?

12. Command Economy
A command economy is also called a centrally planned economy
because the national government is also called the central government, and
the central government plans
all aspects of the economy
Ideally, in a command economy
everyone shares equally in the limited resources
Socialist Economy

13. Market Economy In a market economy
individuals answer the economic questions
Market economies developed with a political philosophy called democracy
democracy emphasizes individual rights
market economies emphasize individual choice

14. Market Economy A market economy is also called a consumer economy
because consumers have a great impact on this economy
Three features of a market economy
private property
economic freedom
market forces

15. Private Property Private property
individuals have the right to buy and own
land
capital goods

16. How is this different from a command economy?
Private Property
Capitalism and capitalist economy are two more terms for a market economy
because individuals can own capital
How is this different from a command economy?

17. Economic Freedom Economic freedom individuals are free
to make their own economic decisions
to start any legal business
to decide what career to choose

18. #4 How is this different from a command economy?
Economic Freedom
A market economy is also called
free enterprise and private enterprise because
enterprise is another term for business
people are free to start enterprises
private individuals (as opposed to the government) can start enterprises
#4 How is this different from a command economy?

19. #5. How is this different from a command economy?
Market Forces
Market forces control a market economy.
Free market economy is another term for market economy
because market forces are “free” to influence the economy
#5. How is this different from a command economy?

20. Command and Market Economies
Features
Command
Market
Political philosophy
Communism Socialism
Democracy
Who answers the three economic questions?
Central government
Individuals
Who controls the economy?
Market forces
Who owns the economic inputs?

21. Command and Market Economies
Features
Command
Market
Main features
Government ownership of land and capital
Government control of labor
Government control of all economic activity
Private property
Economic freedom
Market forces: supply and demand, profit motive, and competition

22. Command and Market Economies
Features
Command
Market
Other names
Centrally planned economy
Communist economy
Socialist economy
Welfare state
Capitalism
Capitalist economy
Consumer economy
Free enterprise
Free market economy
Private enterprise

23. Mixed Economies Most modern economies are mixed. Why?
both market and command economies have flaws
market economies are unstable
command economies are too complicated to successfully plan and control
For these reasons, there are no pure command or pure market economies

24. Mixed Economies In a mixed economy Four types of mixed economies
both the government and individuals
are involved in making economic decisions
Four types of mixed economies
mixed command economy
transition economy
mixed socialist economy
mixed market economy

25. Mixed Command Economy Mixed command economy
command economy with some market elements
During much of the 20th century, China was a communist country with a pure command economy
but the Chinese economy had difficulty meeting the needs of its people

26. China had over 1.3 billion people in 2006, more than any other country

27. Mixed Command Economy In 1978, the Chinese government
started reforms to bring aspects of a market economy to China
less government involvement in farming and industry
individuals allowed to start and run small businesses

28. Transition Economy Transition economy
changing from command to market
The Soviet Union was one of the great command economies of the 20th century
its economy had trouble providing for the needs of its citizens
economic and other problems caused the Soviet Union to break up in 1991
it became 15 independent countries

29. Many of the newly independent countries have transition economies

30. Mixed Socialist Economy
democratic political system
economy that combines market and command elements
France, Sweden, and other countries with a mixed socialist economy are called
social democracies

31. Mixed Socialist Economy
Market/Democratic elements
citizens vote and have many rights
citizens can start and run businesses
Command/Socialist elements
government collects a large percent of income as taxes, to use to ensure a decent standard of living for everyone
government owns and operates major industries

32. Mixed Market Economy
A mixed market economy is a market economy with some command elements
The United States is a mixed market economy because government
helps people in need through social security and welfare benefits
regulates business
collects income taxes, but not as much as in a social democracy

33. A Continuum Continuum a graph that shows two opposite qualities
that blend in proportion from one end to the other
a good way to look at modern economies

34. A Continuum A continuum of economic systems has
a pure command economy at the left
total government control
a pure market economy at the right
individual and market forces totally in control
A country’s position on the continuum depends on the amount of government or individual control

35. Continuum of Economic Systems
Pure Command
Pure Market
Cuba
China
France Sweden
United States
Legend
Amount of governmental control
Amount of individual control
Where on the continuum do the following countries belong? Cuba, China, France, Sweden, United States

36. Review What are the three economic questions?
What are the three types of economies?
What are three features of a market economy?
How is a command economy different from a market economy?
Why are most economies mixed?

37. Glossary capitalism. Another term for market economy.
Back
capitalism. Another term for market economy.
capitalist economy. Another term for market economy.
centrally planned economy. Economy in which the national government makes all the economic decisions; also called command economy.

38. Glossary
Back
command economy. Economy in which the national government makes all the economic decisions; also called centrally planned economy.
consumer economy. Another term for market economy because consumers have a great influence on this type of economy through what they buy and how much they buy.

39. Glossary free enterprise. Another term for market economy.
Back
free enterprise. Another term for market economy.
free market economy. Another term for market economy.

40. Glossary
Back
market economy. Economy in which individuals answer the economic questions and market forces are allowed to operate; also called capitalism, capitalist economy, consumer economy, free enterprise, free market economy, and private enterprise.

41. Glossary
Back
mixed economy. Economy in which both the government and individuals are involved in making economic decisions.
private enterprise. Another term for market economy.

42. Glossary
Back
traditional economy. Economy in which the economic questions are answered by the elders based on the society’s traditions.
transition economy. Economy that is changing from command to a more market economy.