1.   Economic Systems

2. Economic Systems
Definition: The method a society uses to produce and distribute goods and services.
Every society must answer three questions:
1. What goods and services should be produced?
2. How should these goods and services be produced?
3. Who consumes these goods and services?
(how will they be distributed?)

3. Traditional Economy Based on customs/beliefs handed down by generation
Advantages:
Expectations are clear
Strong family and community bonds
Disadvantages:
Progress comes slowly
Inefficient methods of production
Examples:
Amish society
Inuit peoples of the Arctic region
Aborigines of Australia’s outback

4. Command Economy
Government controls factors of production & makes decisions regarding the 3 basic q’s
Decisions might come from single person or a group
Advantages:
Resources can be re-allocated (re-routed) quickly
Very low unemployment
Disadvantages:
Little or no incentive for workers
Goods are often poor quality
Lack of choices for consumers
Examples
Former Soviet Union
North Korea
Cuba

5. Market Economy Aka “capitalist economy” or “capitalist system”
Individuals can own or control:
Land, labor, capital (the factors of production)
Individuals are motivated by self-interest
Decisions are guided by prices

6. Market Economy, cont. Advantages: Freedom of choice
Wide variety goods/services
Rewards those who are motivated
Innovations, rapid progress, higher std. living
Disadvantages:
Members of society who cannot compete are often excluded from enjoying benefits of the system

7. Mixed Economy
Basically, a market economy BUT with limited government intervention (i.e., gov’t DOES impose some limits)
The American economy is mixed
Examples of gov’t intervention in the U.S. economy:
Social security system
Minimum wage law
Anti-Monopoly laws
* Nearly all world economies today are mixed…some with MORE gov’t. control than others

8. Review of Yesterday
What is the economic system that is based on custom and beliefs?
What is the economic system where gov’t has control over everything?
What kind of economic system do we have in the United States?
Why is competition good for consumers?

9. Review of Yesterday
Why is competition in a mixed/market economy better for the consumer than the government control inherent in a Command economy (name two)?
What is the most common outcome of the quality of products in a Command Economy?