Economic Systems

Before we can discuss

economic systems, we need to
review the basic concepts of

Economics.

What is

Economics?

Open Ended

What is economics?

Economics – the choices we make about how to use limited resources to produce goods & services that meet our unlimited wants and needs

Every society has

productive resources:

Land/ Natural

Resources

Human

Capital/Labor

Capital/Tools

Entrepreneurship

Productive Resources are used

to produce:

Goods

Services

Draw

Draw and example of a Good and a Service

7

However, because of SCARCITY,
choices must be made to answer
the Three Basic Questions of
Economics.

1.

What goods and services will be
produced?

2.

How will the goods and services
be produced?

3.

Who will consume the goods and
services?

Multiple Choice

What does scarcity mean in economic terms?

• There is a limited supply of something; Shortage

• The process of choosing one good or service over another

• Any kind of work performed for others

• Something you can feel or any kind of merchandise

Economic Systems

A country must decide how to distribute its resources to meet the needs of its people

How a country makes these decisions determines its type of economic system

An Economic System is the way a society organizes the production, distribution, and consumption of goods and services

Economic Systems

There are 4 basic types of
economic systems that have to
answer three basic questions:

1.

What to produce?

2.

How to produce?

3.

For Whom to produce?

Economic Systems

● WHAT TO PRODUCE? (What kinds of goods

and services should be produced?)

● HOW TO PRODUCE? (What productive

resources are used to produce goods and
services?)

● FOR WHOM TO PRODUCE? (Who gets to

have the goods and services?

The way a society answers these questions
determines its economic system.

Multiple Choice

What does the kind of economy of a country determine?

• The kind of government that a country has

• The amount of people who live in a country

• How the resources get distributed to the people

Types of Economic Systems:

1. Traditional Economy
2. Command Economy
3. Market Economy
4. Mixed Economy

Traditional Economy

● An economic system in which economic

decisions are based on customs and
beliefs

● People will make what they always made

& will do the same work their parents did

● Exchange of goods is done through

Bartering: trading without using money

Multiple Choice

What is Custom?

• A thing that one does habitually.

• A settled or regular tendency or practice, especially one that is hard to give up.

• Traditional and widely accepted way of behaving or doing something that is specific to a particular society, place, or time.

• A religious or solemn ceremony consisting of a series of actions performed according to a prescribed order.

Command Economy

● Government makes all economic

decisions & owns most of the
property

● Sometimes called communism
● Examples: Cuba, former Soviet Union, and North Korea

● This system has not been very successful and more and more countries are abandoning it

Multiple Choice

What is one advantage of a Command Economy?

• Individual freedom for everyone

• Health and public services are available to everyone at little or no cost.

• The government rarely interferes.

• Able to adjust to change gradually

Market Economy

● In a market economy, buyers and sellers answer

the three economic questions

● All resources are privately owned
● Who decides what to produce?

○ Whatever the market demands that will

produce a profit

● Who decides how to produce goods and

services?
○ Private producers (businesses)

● For Whom are the goods and services produced

for?
○ Consumers who demand the product and are

willing to pay

Multiple Choice

In what type of economic system does the government play a limited role in the economy?

• Market Economy

• Command Economy

• Traditional Economy

Mixed Economy

● Market + Command = Mixed
● There are no pure command or market

economies. To some degree, all modern
economies show characteristics of both
systems and are often referred to as
mixed economies.
○ Most economies are closer to one type of economic

system than another

● For example, businesses own resources and

determine what and how to produce, but the
Government regulates certain industries

Poll

What economic system is the best?

• Traditional

• Command

• Market

• Mixed

Which economic system is best?

● The market system has proven to be best

because it promotes the goals of growth,
freedom, & efficiency.
○ Citizens are free to own their own

property and use it in the most efficient
and profitable way.

● Command and traditional systems sometimes

offer more security but are not nearly as
strong in efficiency, growth, freedom, and
environmental quality.