1. The 4 Primary Economic Systems

2. 1. Traditional 2. Command 3. Capitalist 4. Mixed/Socialist

3. Any economic system has to answer 3 Basic Questions: What to Produce? How to Produce it? Whom to Produce it For?

4. How to Produce? Which goals will be given priority? Growth— maximizing production of goods & services Employment— making sure everyone has a job Efficiency— getting more production out of the resources you’ve got Stability— No fast or disruptive changes

5. 1. Traditional How to produce Growth Employment Efficiency Stability Based on Need What to produce and for whom? African Tribes Amish Native Americans

6. 2. Command Government Planning What to produce and for whom? How to produce Growth Employment Efficiency Stability Collectivized Agriculture in China Government Ownership of Industry Soviet Politburo—made all decisions

7. 3. Capitalist Supply & Demand/Price What to produce and for whom? How to produce Growth Employment Efficiency Stability New York Stock Exchange Hong Kong Consumerism Competition

8. Adam Smith (1723-90) Argued: Free markets best promote the social welfare Wrote “The Wealth of Nations”

9. Adam Smith & The Invisible Hand Law #1: People follow their own self-interest Therefore: Markets are self-regulating Government should not Interfere! Law #2: Competition keeps them in check --market runs as if directed by an invisible hand

10. 4. Mixed/Socialist Part Supply & Demand, Part Gov’t Planning What to produce and for whom? How to produce Growth Employment Efficiency Stability French National Transportation system British National Health System (NHS) Hospital Denmark