Types of Economies Economics The Three types of

Types of Economies Economics

The Three types of Economics l Traditional Economies: – – l In a traditional economy the allocation of scarce resources, and nearly all other economic activity, stems from ritual, habit or custom. People are not free to make their own decisions they are bound to the rituals, habits and customs. Pros? Cons?

Command Economies A command economy is an economy where a central power makes most of the decisions regarding economic issues. l Pros vs. Cons? l A positive is that the economies can change direction quickly l A negative is that products aren’t geared toward the consumer and quality and variety fail to exist. l

Market Economies A market economy is where the people and the firms act in their own best interest to answer the questions of what, how and for whom. l Advantages: Its very adaptable. As wants change, goods are changed. l Disadvantages: It doesn't provide for everyone, only the majority. l

Types of Market Economies l In 1776 Adam Smith published a book entitled Wealth of Nations – In this book Smith talked about the concept of Free Market economies l l l A free market economy is one that runs without the interference of the government Smith’s concept of a Free Market economy was laissezfaire (Let it be) In this concept the Invisible Hand is what guides businesses in making their decisions

Types of Markets l Open Market Economy l Mixed Market Economy – – This is an economy that blends government control with free market concepts. The Government sets policies to protect the consumer while still allowing them to make decisions on their own consumption

Economic Interdependence l l Our economy is intertwined with the other economies of the world. Because of this other countries are dependent on our economic success just as we are dependent on their economic success. How have you seen this in our current economic situation.