Types of Economies

TYPES OF ECONOMIES

The Big Three Questions

• Every economic system in the world, past and

present, has to answer these three questions:

• What to produce? (How did economists answer this

question?)

• For whom to produce it?

• How to produce it? (Who owns the factors of

production?)

4 Different Economic Systems

• Traditional

• Command/Socialism

• Capitalism/Market

• Mixed

Traditional Economic System

• Economic system is based on customs and traditions

(handed down from 1 generation to another).

• Allocation of scarce resources stems from ritual, habit, or

customs

• BARTER!! Means trade! No money!

• Examples: Africa, parts of India, the Australian Aborigines

Examples of Traditional Economies

Aborigines

Inuits

Advantages

Disadvantages

• Economic roles are set

• Stable, predictable,

and continuous

• Discourages new

ideas

• Lack of progress

• Lower standard of

living

Does a traditional economy answer the
big three questions?

• What will be produced?

• Whatever tradition, values, and rituals dictate

• How will it be produced?

• However tradition, values, and rituals dictate

• For whom will it be produced?

• Whomever tradition, values and rituals dictate

Command Economy

• A central authority (government)

has to answer the big three
questions

• Government decides the needs of

the people, the best way to produce
it and for everyone!

Command Economy

• There is very little if any input from the
people.

• Examples: North Korea, Cuba, China

Advantages Disadvantages

• Basic Needs taken

care of

• Education, public

health, other services
cost very little if
anything

• Very little

unemployment

• Doesn’t meet wants

• No incentives

• Requires a large

bureaucracy

• New and different

ideas are discouraged

• No room for

individuality

Does a command economy answer the
big three questions?

• What is being produced?

• Whatever the government decides

• How is it being produced?

• The government will tell someone to make it

• For whom is it being produced?

• Whomever the government decides needs it

Capitalism/Market

• System that relies on consumption choices made by

consumers

• Consumers dictate what is produced, how much is

produced, and how much things cost

Capitalism/Market

• Examples: Canada, South Korea, Singapore, Germany,

Great Britain, and the UNITED STATES!

Advantages

Disadvantages

• Individual Freedom for

all

• Lack of government

interference

• Incredible variety to

choose from

• High degree of

consumer satisfaction

• Rewards only productive

people

• Workers and businesses

face uncertainty
(Competition)

• Not enough public goods

(Education, health,
defense)

• Unemployment

• Must guard against market

failure

Answer the big three…

• What will be produced?

• Whatever the consumer wants

• How will it be produced?

• Entrepreneurs will respond to demand

• For whom will it be produced?

• Whomever is willing to work for it (or afford it)

Mixed Economy

• A mix of all of the other three economies

• Some government involvement, consumer driven,

aspects of economy based on traditional values

• This is really what the US is….

• Examples: Obama Care, Bail outs yet consumer

driven. Family owned stores and corporations.

Multiple Choice

Which type of economy is controlled by the government?

• Command

• Market

• Mixed

• Democratic

Multiple Choice

Which type of economy is run by the businesses & business owners?

• Command

• Market

• Mixed

• Democratic

Multiple Choice

Government owns resources and controls production, prices, and wages.

• Command

• Market

• Mixed

• Traditional

Multiple Choice

Prices and wages are determined by producer supply and consumer demand.

• Command

• Market

• Mixed

• Traditional

Multiple Choice

What type of economy does the United States have?

• Command

• Market

• Mixed

• Traditional

Multiple Choice

Resources are usually shared.  Many use bartering to exchange goods and services.

• Command

• Market

• Mixed

• Traditional

Multiple Choice

Government regulates certain industries

• Command

• Market

• Mixed

• Traditional

Multiple Choice

Economy is...

• make (something needed or wanted) available to someone; provide

• the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services

• arrange for (a room, seat, ticket, etc.) to be kept for the use of a particular person and not given to anyone else.

• Cash

Multiple Choice

A producer is...

• a person, company, or country that makes, grows, or supplies goods or commodities for sale.

• A person

• Mars

• the state of being scarce or in short supply; shortage.

Multiple Choice

How would a free market economy be described?

• An economy in which decisions are made by the government.

• A personThe international exchange of goods

• An economy based on supply and demand with little or no government control

• An economy that is communist

Multiple Choice

Most countries have a mixed economy

• True

• False

Multiple Choice

If the government makes me produce 70 T-Shirts, what economic system is this?

• Mixed

• Traditional

• Command

• Market

Multiple Choice

In this economy you might see part of two very different types of economies.

• Mixed

• Traditional

• Command

• Market

Multiple Choice

In a command economy, which group tends to hold the most control?

• Businesses

• Citizens

• Corporations

• Government

Multiple Choice

In a command economy, who keeps all of the profits?

• Businesses

• Citizens

• Corporations

• Government

Multiple Choice

In a market economy, the citizens and "who else" act in self-interest

• Businesses

• Universities

• Government

• All of the above

Multiple Choice

In a market economy, the citizens and "who else" act in self-interest

• Businesses

• Universities

• Government

• All of the above

Multiple Choice

In this type of economy there is a desire to make sure the government does not get too powerful.

• Command

• Traditional

• Mixed

• Free Market