1. Economic Systems Defined and Explained

2. Food for Thought ….
Remember that most countries have a blend between all four economic systems. No “pure” systems really exist.

3. Economic Systems
Economists have identified four types of economic systems.
They are different from one another based on how they answer …
What is produced?
How is it produced?
For whom is it produced?

4. Traditional Economy
Economists' decisions are based on customs and beliefs which have been handed down from generations.
“The way they have always been done.”
For example, if your father is a fisherman than you are expected to grow up and become a fisherman.

5. Traditional Economy Advantages: You know what is expected of you
Family and community ties are very strong
Disadvantages:
Change is discouraged
Production is often inefficient
Where do you think these economies may exist?

6. Command Economy
Government leaders control factors of production and make all decisions about their use.
They decide what will be produced, how resources will be used and how goods will be distributed.
For example: You may not be allowed to choose your career. The government guides people into certain jobs and wages are decided for you.

7. Command Economy Disadvantages: Lack of incentives to work hard
Lack of choice
There are not many examples of Command Economy’s today. One example would be North Korea
Are there any advantages to this type of economy?

8. Socialism & Communism The state owns the major factors of production
Individual rights are limited to eliminate social classes
Taxation is often used to redistribute income
How are they different?
Communism is more extreme and refers to politics as well as the economy.

9. Market Economy
The individuals make the economic decisions because government is limited
Individuals decide what to produce and how to produce it
Freedom of prices

10. Market Economy Advantages:
Freedom to choose your career, to own property and to spend money how you want
Disadvantages:
Concern with people too young, too old or too sick to work
Perhaps the government, churches or other organizations should help them

11. Capitalism – A Market Economy
Economic system in which private individuals own the factors of production
Pure capitalism has been called laissez-faire
“Let people do as they choose”
Individuals and business make their own economic decisions without any government interference.
Is the United States a purely capitalist nation?

12. Characteristics of Capitalism
1. Freedom of Enterprise – Individuals own the factors of production and decide how to use them, within legal limits.
Ex. Entrepreneurs
2. Freedom of Choice – Individuals freely choose what they want to buy.
How does this affect the Freedom of Enterprise?

13. Characteristics of Capitalism
3. Profit Incentive – Sellers want to make a profit. There is a risk of failing.
Profit – The amount left after all the costs of production have been paid (Ex. wages and taxes)
4. Competition – Rivalry among producers or sellers of similar goods and services to win more business
How would good competition better our economy?

14. Mixed Economy
Combines elements of a market economy with a command economy
For example:
“In the United States, most decisions are made by individuals reacting as participants within the market. Federal, state and local governments, however, make laws protecting private property and regulating certain areas of business. Such regulations include certain environmental protections, safety guidelines for workers, and laws to protect consumers.