Types of Economic Systems 3 Types of Economic

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Types of Economic Systems

Types of Economic Systems

3 Types of Economic Systems l Every society must answer 3 questions: ü WHAT

3 Types of Economic Systems l Every society must answer 3 questions: ü WHAT (produced/quantity) ü HOW (produced) ü FOR WHOM (produced)

TRADITIONAL v Decisions are based on customs and beliefs. v Change is discouraged and

TRADITIONAL v Decisions are based on customs and beliefs. v Change is discouraged and even punished. v Methods of production are often inefficient. v Family and community ties are strong.

MARKET v Decisions made by individuals. v Individuals own factors of production and choose

MARKET v Decisions made by individuals. v Individuals own factors of production and choose what to produce. v Competition v Consumer choice is large. v Little incentive to engage in unprofitable ventures. v Caring for the sick

How many different businesses can you identify? How would the local economy be affected

How many different businesses can you identify? How would the local economy be affected if another Hotel is opened across the street?

COMMAND v Decisions are made by govt. leaders. v Govt. owns the Factors of

COMMAND v Decisions are made by govt. leaders. v Govt. owns the Factors of Production. v Prices set by the govt. v Consumer choice is limited. v Resources can be quickly rerouted. v Income distribution can be controlled by the govt.

Which of these economic systems best describes the US? l Give examples of when

Which of these economic systems best describes the US? l Give examples of when the other 2 systems have been (or might be) utilized by the US for making economic decisions. l

MIXED ECONOMIES l Have elements of all 3 economic systems. – Rely on both

MIXED ECONOMIES l Have elements of all 3 economic systems. – Rely on both markets and govt. to allocate resources.

1. CAPITALISM: l Free Enterprise System – people are free to make choices Private

1. CAPITALISM: l Free Enterprise System – people are free to make choices Private Ownership l Big Business (corporations) l Supply/Demand l – Producers produce G/S consumers want – Consumers want and seek G/S that satisfy them most GOAL: PROFITS- $ left over after costs have been subtracted from revenues l PROB: Creates Class System l rdg.

ADAM SMITH (p. 28) l 1776 “Wealth of Nations” – “Led by an invisible

ADAM SMITH (p. 28) l 1776 “Wealth of Nations” – “Led by an invisible hand to promote an end which was no part of his intention… and by pursuing that of society more effectively than what he really intends to promote. ” – Laissez Faire- “hands off”

2. SOCIALISM Govt. owns some or all of factors of production. l Govt. plans

2. SOCIALISM Govt. owns some or all of factors of production. l Govt. plans ways to allocate resources in key industries. l Govt. directs the completion of its economic plans. l People still own private property l – Choose Jobs – TRANSITION PERIOD l GOAL: Equality

Karl Marx l 1848 “Communist Manifesto” – Wanted equality – Eliminate class system Workers

Karl Marx l 1848 “Communist Manifesto” – Wanted equality – Eliminate class system Workers (the proletariat) l Elite (the bourgeoisies) l

3. COMMUNISM All resource govt. owned and operated l Centralized planning l Govt. makes

3. COMMUNISM All resource govt. owned and operated l Centralized planning l Govt. makes all economic decisions l – Govt. censorship Blueprint l GOAL: Equality l