Economic Systems Chapter 16 What are economic systems

Economic Systems Chapter 16 What are economic systems?

Economic systems: A nation’s way of producing things it’s people want and need

The 3 Basic Economic Questions • 1) What goods and services will be produced? • 2) How will they be produced? • 3) Who will consume or use them?

Traditional Economy Decisions on what, how, and for whom to produce are based on custom or habit Examples: African Tribes Eskimos Brazilian Rainforest Farmers

Advantages • • Jobs for all members of the community Stable, predictable, and continuous life Revolves around family Communities stay relatively close and small

Disadvantages • Discourages new ideas, new technology, and new ways of doing things • Stagnation and lack of progress • Lower standard of living – lack modern conveniences • Hard to deal with disasters such as floods, drought

Market Economy Individuals and businesses make economic decisions based on price Examples: United States

Advantages • Individual freedom for everyone • Little government interference • Make your own decisions • Variety of goods and services • High degree of consumer satisfaction

Disadvantages • Rewards only productive resources; does not provide for people too young, too, old, or too sick to work • No guarantee for job • Does not produce enough public services such as universal education or health care

Command Economy GOVERNMENT makes the major economic decisions for you EXAMPLES: CUBA NORTH KOREA VIETNAM

Advantages • Government is in command of the economy • Capable of dramatic change in a short time • Little uncertainty over choice of career, where to work, or losing job • Many basic education, public health, and other public services available at little or no cost

Disadvantages • Does not meet wants and needs of consumers • Lacks effective incentives to get people to work • New and different ideas discouraged, no room for individuality

Mixed Market Economy has some elements of all three other types of economies EXAMPLES: USA Italy Canada Germany France

The degree of government involvement in the economy varies among nations, and can affect its society. Continuum of Mixed Economies Centrally planned Free market Iran North Korea Cuba South Africa China Russia France Botswana Greece United Kingdom Canada Peru Hong Kong Singapore United States