Economic Systems Traditional Command Mixed and Market Systems

Economic Systems Traditional, Command, Mixed and Market Systems

Traditional • Economic decisions repeat those made in earlier times. • Based on custom and tradition • Children follow in parents footsteps • Tradition dictates how and when things will be produced – plant corn when oak leaves are the size of a squirrels ear • Social units share goods and trade

Command • Economic decisions are made by the gov’t • Planners decide what to produce, how to produce and for whom to produce • Command decisions can be democratic or authoritarian • Individuals have little or no choice • Middle Ages, Ancient Egypt – monarchs controlled what would be produced

Market • Decisions are made by people engaged in • • • voluntary exchanges. Consumers determine what to produce. Producers determine how to produce. Income depends on the productive resources a person has to sell. Market prices are signals that effect consumption and production. Government has little or no say in production.

Command Economies Market Economies • Government Ownership of • Private ownership of all • • • all nonhuman resources Primary allocation of resources determined by central planners Income equality promoted by wages set by planners. Zero Unemployment types of resources • Market prices direct products and resources • Income depends on the • resources an individual has to sell. Some forms of unemployment are tolerated.

Command • State enterprises never • fail due to subsidies, permission to raise prices or exemption from taxes. Central planners make producation decisions to meet social goals, with limited consideration of Market • People change jobs, • changes in skills sought by employers, cyclical and seasonal fluctuations Consumer demand is the driving force behind firms’ production decision

Command • Limited foreign trade to maintain econ independence • Prices usually set below market clearing price to ensure goods are sold and control officially measured inflation. Market • International specialization promotes competition and holds production costs and prices down • Prices adjust to keep consumption and production at market equilibrium levels.

Mixed Economies • Combines elements of traditional, market and command • econ models (3 types) Authoritarian socialism (communism) – Gov’t plans & owns everything in production • Capitalism – Individuals factors of production – Some gov’t regulation – limited – Provide some social services, ed, defense • Democratic socialism – – – Gov’t owns factors of production and key industries Individuals elect officials who plan Some market with individual businesses encouraged