ECONOMIC SYSTEMS ALL economic systems Organized ways of

ECONOMIC SYSTEMS

ALL economic systems • Organized ways of providing for wants and needs of a country’s people • Answer the 3 basic economic questions • Have to deal with SCARCITY of resources • Have trade-offs • Have opportunity costs

Four Economic Systems • • Traditional Market Command Mixed

Traditional Economic System • Economic questions answered based on ritual, habit, or custom • Individuals NOT free to decide • Customs of elders and ancestors decide • Examples: indigenous tribes in Africa, Australia, New Guinea, north Canada • Advantages? • Disadvantages?

Market Economic Systems • What, how, for whom questions answered – By individuals and firms in marketplace • Individuals are free to make decisions • Producers make goods that consumers like • Individuals’ incomes determine division of output (who gets what, how much) • Private ownership and control of resources • People depend on voluntary exchange

Considerations about Market Economies • They CANNOT guarantee economic security and fairness – no equal distribution of $ • They depend on entrepreneurship – Entrepreneurs depend on government patents • Unlike traditional economies, market economies adjust to consumer demands • They provide efficient use of resources which leads to economic growth

Command Economic Systems • 3 economic decisions based on governmental regulation • Government owns means of production – Factories, utilities, transportation, etc. • Little or no individual freedom or choice – Compared to market economy – Example: communist North Korea, Cuba

Considerations about Command Economies • Can change direction in short time – Ex. USSR under Stalin • Provide economic security services to people – Ex. Housing, jobs, food, healthcare • Modern command economies have failed – MAIN reason: government decision-making led to shortages and inefficiency • LESS freedom and LESS efficiency than market economies

Communist Command Economies • THEN: COLD WAR • Afghanistan, Albania, Angola, Benin, Bulgaria, Cambodia, Congo, Czechoslovakia, East Germany, Ethiopia, Hungary, Mongolia, Mozambique, Poland, Romania, Somalia, South Yemen, Soviet Union, and Yugoslavia • • • NOW *China Cuba Laos North Korea *Vietnam • *”Hybrid” countries: Communist government, increasingly market economy

Mixed Economic System • MOST nations in the world today have mixed economies • USA is a mixed economy – Government command elements?