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Types of Economic Systems

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					TYPES OF ECONOMIC
     SYSTEMS




         Unit 3
   Standard: SS7E5a,b
What is a
Traditional
Economy?
A pure traditional economy answers the
 basic economic questions according to
 tradition.
Things are done as they were in the past,
 based on tradition, custom, and beliefs (like
 religious beliefs).

      resources are inherited
      there is a strong social system
      based on primitive methods and tools
      strongly connected to subsistence farming.
      usually developing countries
Traditional Economy
  What should be produced?
      By custom – whatever was produced in
       the past

  How should it be produced?
      By custom – however items were produced
       in the past

  For whom should it be produced?
       By custom – whoever usually received
        products will again receive them
What is a
 Market
Economy?
   In a pure market economy, individuals and
    businesses make the economic decisions.
   National and state governments play a
    minor role.
   The market is freely chosen between buyers
    and sellers of goods and services.

    ●   The market plays a major role in deciding the
        right path for a country’s economic development.
    ●   Capitalism is a pure market economy.
    ●   Consumers and what they buy drives the
        economy.
 Market Economy
 What should be produced?
  ● Consumer choices dictate the success of
    goods and services

 How should it be produced?
   Business leaders choose the means of
    production
   Their goal is the most efficient and profitable
    methods

 For whom should it be produced?
   ● The consumers’ income determines who
     receives which goods and services
What is a
Command
Economy?
 The government controls the production
  and makes all decisions.
 This could be one person, a small group,
  or central planners who decide what
  resources to use at each step of
  production and the distribution of goods
  and services.

    ●   The government decides the role everyone will
        play.
    ●   It guides the people into certain jobs.
    ●   Typical in communist countries, dictatorships,
        or absolute monarchies.
Command Economy
 What should be produced?
  ● The government decides what should be
    produced and owns most of the means of
    production

 How should it be produced?
   The government does the planning for
    production: factory locations, the occupations
    of workers and their salaries


 For whom should it be produced?
   The government controls the distribution
    system for goods/services: housing,
    transportation, consumer items and sets prices
What is a
  Mixed
Economy?
   A mixed economy contains elements of the
    market, command, and traditional economies.

   Many economists doubt that “pure” economic
    systems ever existed.

   Supply and demand typically determine prices;
    however, the government may step in from time
    to time to set prices, establish a minimum wage,
    or control industries such as healthcare and
    education.

   In some countries there is some private
    ownership of businesses, such as in China.
        What is a Continuum?
   A continuum is the range between two
    things, usually opposites of extremes.
     On an economic continuum the range is
      from a pure market economy on one far end
      to a pure command economy on the other
      end.
     Almost all countries have a mixed economy
      that falls somewhere in the middle or closer
      to one end than the other.


             ECONOMIC CONTINUUM

    MARKET           MIXED            COMMAND
CHARACTERISTICS OF THE UNITED STATES
      MIXED ECONOMIC SYSTEM
            Not all decisions are made by individuals
             reacting to the market.
            Federal, state, and local governments make
             laws regulating some areas of business.
            Public and private sectors contribute to the
             economy in varying proportions. For example,
             federal defense spending can boost the
             economy.
            Government steps in to handle inequities in the
             system. Many social/welfare programs were
             created during the 1930s.
            Traditional celebrations like Christmas affect
             portions of the economy.

				
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