1.  Systems that answer the 3 basic economic questions of what, how, and for whom?  Incentives: ◦ An incentive is what motivates people to act in an economy. (could be money, hunger, or any other need.) ◦ Ex. Waitress brings your food quickly: Why? Because you’re starving? No, because faster, better service means a larger tip, and more tables served which equals more money.

2.  Traditional System ◦ Custom and tradition answer the 3 basic questions. ◦ Ex. African tribes refuse to trade some of their cattle for grain seed because their ancestors didn’t

3. Peasants bringing food.  Command System ◦ Feudal system is a past example…..Kings, lords, serfs. ◦ The “government” or king/lord combo give directives about serfs economic behavior. Ex:(Serfs must pay tax on lands they don’t own or give best crops to lord.) ◦ This system provides no incentive to perform. (ends up being very inefficient)

4. ADAM SMITH  Market System ◦ A Pure Market system has NO government involvement. ◦ The people answer the 3 basic questions. ◦ The incentive to work hard because the result can be increase in wealth…maybe even be rich! ◦ Adam Smith wrote about how wonderful the market system is in the “Wealth of Nations”. ◦ He said the incentives it provides motives people and the “invisible hand” of supply/demand guides the market.

5.  Mixed systems include elements of different economies, and are most prevalent today.  They are:  1.Communism  2. Socialism  3. Capitalism

6. KARL MARX  Mostly Command with a touch of market.  The three questions are answered by the Government only.  The government controls where you can live, your job, and how much money you will make.

7. HUGO CHAVEZ  You are taxed at a very high rate.  Government provides cradle to grave services such as healthcare, education, job, and retirement. (Standards of living are low.)  No incentives and waste ruins efficiency.  Ex. Cuba 9,000 GDP, China 6,000 GDP, and North Korea 1,900 GDP.

8. JOSEPH STALIN  Developed at the end of WWII. It is a 50/50 mix of Comm. and Cap.  The 3 basic questions are answered by the people and gov’t.  It provides few incentives.  It does provide public services like healthcare, education, and retirement.

9.  Taxed around 50%, but other benefits can include rent-control, state provided job, lifetime employment, and healthcare.  Living standards tend to be lower in these countries due to gov’t inefficiency, waste, and public welfare.  Ex. France, Germany, Italy. ($31,000 avg. GDP)

10.  It is mostly market controlled because the government has a limited role in the economy and means of production until recently. (Bailouts)  There are many incentives to work hard, including job choice, flexibility in retirement, and financial independence.  The people answer the 3 basic questions.  The system is considered mixed b/c the government is present to “watch”.

11.  The gov’t is not supposed to involve itself with the supply/demand or consumer choices. (ask me about Fannie Mae and Freddy Mac)  This could alter the performance of the free- market, and ultimately deter true Capitalism because people will expect gov’t help instead of self-reliance.  Living standards are highest in the world.  U.S. is best example 46,000 GDP, South Korea 28,000.