Economic Systems Introduction In any type of economic

Economic Systems

Introduction In any type of economic systems, four basic questions must be answered: 1. 2. 3. 4. What will be produced? How many will be produced? For whom will it be produced? Who will produce it? We classify economic systems according to how they answer these questions.

Traditional Economy “That’s The Way We’ve Always Done It Ville” n Economic questions answered according to custom & tradition n Production is done the way it has always been done. n n Same work as their parents and grandparents Examples Rural areas of South America & Africa

Basic Questions All Economic Systems Address What will be produced? Custom tells them what to make n For whom will it be produced? Customs tell you who needs what you make n How many will be made? Your society rewards you based on incentives in your culture n Who will produce it? Customs dictate your job, same as your parents and grand parents n

Command Economy “We Do What We’re Told Ville” n n Centrally planned economy—Government tells you what to make Government owns property and resources Lack of consumer choice Example Communist North Korea

Basic Questions All Economic Systems Address What will be produced? Government tells you n For whom will it be produced? Government tells you what is needed n How many will be made? Government tells you how much to make n Who will produce it? Government tells you what job to do n

n Market Economy “Make As Much As We Want Ville” Economic questions answered according to wishes of buyers & sellers n n n Motivated by profit and competition Consumer sovereignty— customers decide what goods and services should be produced (wants) Individual choice determines progress of market Private ownership of property and resources n Minimal government involvement in the economy n Example United States n

Basic Questions All Economic Systems Address What will be produced? Whatever is most profitable n For whom will it be produced? The person who will pay the most n How many will be made? The more you produce, the more profit can be made n Who will produce it? Individuals pick their jobs based on interest, education, and availability n

Question… Is the United States a PURE Market Economy? Does it operate without any type of government intervention?

Mixed Economy No system in the world is PURE n Mixed Economy Economic system that incorporates elements of different systems (usually command market) n United States Example: n Market Malls, restaurants, entrepreneurship n Command Minimum wage, labor laws n Traditional “blue laws”, Chick Fil-A n

Mixed Economy n Government and individuals share the decision making process n Individuals and business are the owners and decision makers in the private sector n Individuals own the means of production (factories, resources) n Government is the decision maker for the public sector (Public Utilities—water and sewer)

Mixed Economies n Government guides and regulates production of goods and services offered n n Most effective economy for providing goods and services n n What does the food and drug administration regulate? Power and cable companies—Federal Energy Regulatory Commission (FERC) Protects consumers and workers from unfair policies More gov’t involvement than in free market and less than in a command The United States and most of Western