Economic Systems WANTS NEEDS SCARCITY Basic Economic Questions

Economic Systems

WANTS NEEDS SCARCITY

Basic Economic Questions - What to produce - How to produce it - How much to produce - Who gets it?

Factors of Production -Land (Natural Resources) -Labor (Workers) -Capital (Money/Manmade Goods) -Entrepreneurship (Someone with an idea)

Traditional Economy - Operates by traditional ways, customs, religion, and beliefs - The people supply most of the goods and services they use - Usually uses little technology and may include bartering for goods Where? “Underdeveloped” countries; rural and remote areas of South America, Africa, SE Asia

Traditional Economy Advantages: - Keeps traditions/customs alive - Self-sufficient -World changes rarely affect them Disadvantages: - Cannot mass produce - Not as wealthy - Not much competition - Hard to compete in world market

Command Economy - The economy is entirely controlled by the government - The government owns all factors of production and makes all decisions - All profits go to government - “Socialism” and “Communism” - Where? China, Cuba, Former Soviet Union, North Korea, Vietnam

Command Economy Advantages: - Organized and efficient use of resources - Strong nationalism - Wealth is distributed equally Disadvantages: - No choice or freedom - No rewards or incentives to produce more or better - No competition

Market Economy - Market = buying and selling goods (Voluntary Exchange) - Free Market = No government control or regulation (“Laissez-Faire”) - Individuals own and control all factors of production and make all decisions - Based on supply and demand - “Capitalism” The USA is the best example of capitalism, but we do not have a pure market economy. Why not?

Market Economy Advantages: - Lots of freedom and choices - People can become very wealthy (“The American Dream”) - Private ownership - Lots of competition (low prices) Disadvantages: - Unequal distribution of wealth - Large gaps between rich and poor (wealthy take advantage of poor)

Mixed Economy - Combination of private ownership and public (gov’t) ownership - Mix between market and command - Government regulates SOME aspects of the economy - Most countries have a mixed economy – some lean more towards market (US) and some more towards command (China) or socialistic (Great Britain, Sweden)

Mixed Economy Advantages: - Government places rules and regulations on businesses to ensure they don’t hurt consumers or workers - Private citizens still make all decisions and make profits Disadvantages: -Less freedom; must comply with government’s rules - Can be costly; expectation of government to provide services