Types of Economic Systems by pptfiles

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									What are the
  3 main
questions???
What are the 3 main questions???
  1. What goods/ services should be
              produced?

   2. How should they be produced?

3. For whom should they be produced?
    Types of Economic Systems
There are 4 systems that differ based on
 how they answer the 3 basic questions
   (what, how, for whom to produce)
    Trdn
    Cmnd
    Mrk
    Mxd                   The traditional commander
                          made his mark with his mix
 Traditional Economy: system in which economic
decisions are based on customs & beliefs that have
been handed down from generation to generation




• “Things are done the way they always have been done”
• Economic decisions are based on customs & beliefs
  handed from generation to generation
• If your father was a fisherman, you would be a
  fisherman, your son would be a fisherman, etc…
            Traditional Economy…
• ADVANTAGES
  – You know what’s expected of you
  – Family/ community ties are very strong
• DISADVANTAGES
  – Change is discouraged & even punished
  – Choices among consumer goods are rare
  – Rare increase in the level of material well-being
  – Things tend to stay the same

  In Australia, Aboriginal tribes/ civilizations are
               traditional economies
Command Economy: system in which the gov’t
controls the factors of production & makes all
           decisions about their use




• Also known as a “controlled system”
• Decisions in gov’t are made by leaders only
• One leader, small group of leaders, group of central planners
• Leaders control all facets of the factors of production
  (LALAgsCAP’EN)
• You get paid what your leader decides & you may not be able to
  choose your own career
            Command Economy…
• DISADVANTAGES
  – Lack of incentives to work hard since gov’t set
    workers’ salaries
  – Little/ no room of “moving up”
  – Lack of consumer choices




   North Korea is a command economy – all economic
                activity is gov’t planned
Market Economy: system in which individuals own
    the factors of production & make economic
decisions through free interaction while looking out
    for their own & their families’ best interests
• Also known as “capitalism”
• Opposite of a command
  economy
• Limited gov’t makes it possible
  for individuals to make their own
  economic decisions
• Individuals control all facets of
  production (LALAgsCAP’EN)
• These decisions are guided by
  market prices
   Market Economy…. MARKETS:
• Market: process of freely exchanging goods &
  services between buyers & sellers
   – Voluntary exchange
   – Worldwide – oil
   – Local – babysitting/ snow shoveling




• High priced goods = relatively scarce product
• Low priced goods = relatively plentiful product
• *Prices can fluctuate between high & low – this
  results in an incentive-driven system*
     Market Economy…
• ADVANTAGES
  – Freedoms: choose career, spend freely,
    own property, take risks, earn profits
  – Competition allows for a HUGE array of
    goods & services to pick from
• DISADVANTAGES
  – Too old/ too young/ too sick are pushed
   out of the system & rely on charity or
  hand-outs
 Market Economy…Circular Flow of Income/ Output
• Circular flow of income & output: economic
  model that pictures income as flowing
  continuously between businesses & consumers




                    The flow of resources, goods &
                      services, & income is circular
   Circular flow of income & output
– Dollars flow from businesses to individuals & back to businesses
– Factors of production flow from individuals to businesses, which
  use them to produce goods & services that flow back to the
  individuals
     Mixed Economy: system combining
   characteristics of more than one type of
       economy (market & command)
                • Most countries in the world have
                  a mixed economy
                • Private ownership of property &
                  individual decision making are
I own my own
  business &      combined with gov’t intervention
     control
  everything
                  & regulations
 BUT need to      – United States
     follow          • most decisions are made by individuals within
    business           the market
  regulations
                     • BUT federal, state & local gov’ts make laws
                       protecting private property & regulating areas
                       of business
                  Your Turn….
Come up with a memory device….




     How can you (we) remember the following:
 - 4 types of systems: traditional, command, market, mixed
  - We’ll vote on the best…. That person gets 5 smackers!!!
   Circular flow of income & output
– Dollars flow from businesses to individuals & back to businesses
– Factors of production flow from individuals to businesses, which
  use them to produce goods & services that flow back to the
  individuals
                          Major Economic Systems
                         (you’ll see this again… do it right!)

 Type of      Who makes decisions             Advantages         Disadvantages
 system       based on the basic 3
                  questions?
Traditional



Command



 Market



  Mixed

								
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