Unit V: GOVECON_Types of Economies

FOUR ECONOMIC SYSTEMS

World Geography I
MR TOLLE

Learning Target:

Explain the Pros / Cons of the Four
Economic systems

Three Big Questions

•Every economic system in the world, past and
present, has to answer these three questions:

• WHAT to produce?
•
• For WHOM to produce it? (Distribution)

• HOW to produce it? (Who owns the factors of
production?)

4 Different Economic Systems

•Traditional Economy
•Command Economy
•Free Enterprise / Market Economy
•Mixed Economy

Traditional Economic System

• Economic system is based on customs and traditions (handed down from generation to generation).

• Allocation of scarce resources through ritual, habit, or custom

• BARTER!! Means trade! No money!

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

Examples of Traditional Economies

Aborigines

Inuits (Eskimos)

Mbuti

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) answers 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 Economy

• System that relies on consumption choices made by
consumers

• Consumers dictate what is produced, how much is
produced, and how much things cost

• Father of Capitalism: Adam Smith “The Wealth of Nations”

Capitalism/Market Economy

• 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 / Quality! (smartphones)

• GREED (Monopolies)

• Competitive Marketplace (unemployment)

• Lopsided distribution of wealth (1% control >30% of the nation's wealth, while bottom 50% control < 3% of the nation's wealth)

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.