1. Chapter 2
ECONOMIC SYSTEMS

2. Introduction to Economic Systems
Section 1
Introduction to Economic Systems

3. Types of Economic Systems
An economic system is a way a society uses it’s scarce resources to satisfy it’s people’s unlimited wants.
There are 3 basic types of economic systems:
Traditional Economy
This type of economy is based on customs and beliefs that have been handed down from generation to generation. The main goal of these societies is survival.
Command Economy
The Government decides which goods and services will be produced, how they will be produced, and who will produce them.
They do not take into consideration the wants of the consumers
This is a Communist society
Market Economy
This type is based on individual choice, not government directives.
Consumers and producers drive the economy.
This is the type of economy we have in the United States.

4. Characteristics of Traditional Economies
In the early days ALL societies had traditional economies but most have changed since then
There are clear advantages and disadvantages to a traditional economy
It clearly answer the 3 economic questions as it is setup for survival
People know what is expected and what will be produced there isn’t many surprises
The disadvantages are it resists any type of change and therefor does not grow
People also have a much lower standard of living.
Traditional economies have been under a lot of pressure to change
People grow tired of living day to day with no chance of advancement and comfort in life and begin to push for their country to evolve away from traditional economic ways.

5. Section 2
Command Economies

6. Government Controls
A command economy is a Communist type economy where the government plans everything for the people in what is called a central planned economy
Basically the government decides which businesses are allowed to be in what city, what they produce, how much they produce of it, who works to produce it.
There is no choice by the consumer or producer in this type of society

7. Socialism and Communism
Karl Marx a 19th century philosopher is the reason societies have adopted a command type economy
In this type of economy the industrialists grew rich while the workers remained poor
This was setup for all classes to share wealth
Socialism is an economic system in which the Government owns some or all of the factors of production (originated from Karl Marx)
Communism is an even more extreme version of Socialism where there is no private ownership of property and little to no political freedom

8. Command Economies Today
North Korea is a command economy they take the majority of their countries resources and divert it to the military boasting a military of over a million soldiers
Because of this millions of North Koreans died due to starvation because the government chose to send those resources to the military instead of to it’s people
Many North Koreans survived due to aide from other countries
Their economy shrunk each year as this type of government did not work

9. Impact of Command Economies
In theory command economies do have advantages
Everyone is taken care of, they all get equal shares, and the government can use some of the resources to produce items that won’t make money in a market economy
In practice there is more disadvantages though as central planners don’t know the needs of all people, workers have little to no chance of improvement so they lose their desire to improve themselves meaning production goes down and there is no motivation to use natural resources wisely because you don’t have the opportunity to get more if you do.
People in these economies struggle mightily due to the lack of ability to plan for large numbers

10. Section 3
Market Economies

11. Fundamentals of a Market Economy
2 key concepts of a market economy are as follows:
Private property rights – the rights of individuals and groups to own property
Market – any place or situation where people buy and sell resources and goods and services.
These 2 concepts are derived from self interest and how to better one’s self interest.

12. Fundamentals of a Market Economy
Private Property and Markets
Private property rights must be well defined and actively enforced by law.
Limited Government Involvement
This is based on private ownership (capitalism) and giving producers and consumers the right to decide what they want
Voluntary Exchange in Markets
This is where buyers and sellers agree to do business together voluntarily.
Competition and Consumer Sovereignty
Where 2 or more people actively engage to try and gain the business of others by providing the best deal which in turn allows the consumer to get a good fair deal on products.
Specialization and Markets
This allows people and businesses to specialize in a product they do best and in turn creates a much more efficient economy

13. Circular Flow in Market Economies
There are 2 key economic decision makers in a free market economy (Product Markets and Factor Markets) and they are displayed on a Circular Flow Model
Product Markets are the markets for goods and services
Factor Markets are the factors of production (land, labor, capital, and entrepreneurship)

14. Impact of Market Economies
There are advantages and disadvantages to a Market Economy
Advantages –
Freedom of choice is 1 of the key advantages
This applies economically as well as politically because in this type economy the government does not hold the power to dictate what consumers and producers do
Limited government interference makes it advantageous to people who utilize this type of economic process
Profit is an advantage because people have the ability to gain profit for themselves
Incentive
Disadvantages –
There is no group or public assistance the emphasis is placed on the individual
No security for those who cannot produce for themselves
No Government regulation means more opportunity for corrupt business leaders

15. Modern Economies in a Global Age
Section 4
Modern Economies in a Global Age

16. Today’s Mixed Economies in a Global Age
A mixed economy is an economy that has characteristics of a traditional, command, and market economy all mixed together.
All modern economies are mixed today but they generally emphasize 1 type of system or another.
The U.S.A. has characteristics of all but is driven mostly by a Market system
In Europe it has more of a mix between mixed and command economies
European governments are much closer to a Socialistic government as opposed to where the U.S. is closer to a market economy.

17. Trends in Modern Economics
In a transition period economies will a lot of times have a change in ownership of companies.
1 way to do this is through nationalizing companies by transitioning them from private control to government control
Another way is to privatize companies by doing the opposite or going from government control to private control

18. Trends in Modern Economics
One way you can privatize industry is to open it up to foreign investors which in turn helps to aid the global economy by making more transactions global
This is important because it opens up the world economy for more economic globalization and unity.
This also was made possible because of faster, cheaper, more efficient travel and communication.