Economic systems overview

Market Economic System• Also known as Capitalism, Free Market, or Free Enterprise • Defined: ownership of resources and means of production by individuals, basically free of government

Economic Systems

Problems All Economies Face

Scarcity forces all

countries to answer

these 3 questions

Scarcity leads to conflict

Do All Countries Answer These

Questions The Same Way?

• Conflicts arise in all economies

Different Countries Use Different Systems To Answer These Questions

Major Economic Systems Include:

Market

Traditional

Command

Market Economic System

• Also known as Capitalism, Free Market, or Free Enterprise

• Defined: ownership of resources and means of production by

individuals, basically free of government control in deciding goods and services produced

• Ownership of Resources: Productive resources privately owned

and operated

Market Economic System

• Allocation of Resources: Resources are obtained through the lure

of profits in the market

• Role of Government: Government only tries to make sure there

is some competition and provides some public goods

Market Economic System

• Goals: Profit for individuals, people are

motivated by economic rewards

• Methods: Competition, supply and demand

• Characteristics: Private property,

specialization, minimal government regulation

• Political System: Democracy/Parties

• Current World Examples:

Switzerland Canada Australia Chile Argentina South Africa

Command Economic System

• Defined: An economy in which all of the major economic

questions are answered by a central authority

• Ownership of Resources: All Productive resources are owned

and operated by the government

Command Economic System

• Allocation of Resources: Central planning group directs all

resources

• Role of Government: Government makes all decisions

Command Economic System

• Goals: Equal distribution of income

• Methods: Revolution to gain control, no

opposition forces allowed

• Characteristics: no private property, one political

party

• Political System: Totalitarian

• Current and Former World Examples:

Cuba North Korea China Former Soviet Union

Traditional Economic System

• Defined: An economic system that does things as it always has

• Ownership of Resources: All productive resources are owned by

families

• Allocation of Resources: Based of customs and traditions within

the tribe

• Role of Government: Tribes play some role in making economic

decisions

Traditional Economic System

• Goals: Keep things how they have always been

• Methods: Customs and traditions passed down through

family lineage

• Characteristics: Children follow in parent’s footsteps, lack of

economic growth

• Current Examples:Aborigines Australia

Mbuti Pygmies of the Congo Kung Bushmen of Africa

• Political System: Tribal Organizations

No Pure System Is Perfect: Market

Strengths :

• Able to change gradually

• Individual freedom for all

• Lack of government

Interference

• Variety of goods and

services

• High consumer

satisfaction

• Promotes economic

freedom and growth

Weaknesses :

• Does not protect the

young, sick, old who cannot work

• Market failures happen

leading to lots of ups and downs

• Doesn’t promote

economic security, equity, or efficiency as well as other systems

No Pure System Is Perfect:

Command

Strengths :

• Things can be

changed

dramatically in a

short time

• Promotes economic

security, efficiency,

and equity

Weaknesses :

• Does not meet the needs and

wants of consumers

• Lacks effective incentives to get

people to work

• Needs a large bureaucracy

which consumes resources

• Inflexible for day-to-day

changes

• New and different ideas

discouraged, people can’t be individuals

growth or freedom

No Pure System Is Perfect:

Traditional

Strengths :

• All members of the

community have

defined roles

• Stable, predictable,

and continuous life

• Promotes: economic

security and equity

• Discourages new

ideas or ways of doing things

• Stagnation and lack

of progress

• Doesn’t promote

economic growth or freedom

If No Pure System Is Perfect Then

What?

• Most countries in the world are a blend of different elements

• They are called mixed or combination systems

• Market Command

Economies

Mixed Economic System

• Defined: A system in which economic questions are answered by

a combination of command and market methods

• Ownership of Resources: Basic utilities, other important

resources government owned and operated; the rest privately owned and operated

Mixed Economic System

• Allocation of Resources: Government plans where resources go

for key industries

• Role of Government: Government directs its plans for the

biggest, key industries only

Mixed Economic System

• Goals: Equal distribution of income

• Methods: High Taxes

• Characteristics: Limited competition, lots of

government planning, many services paid for

by government: health, education, welfare

• Current World Examples:

England Germany Sweden Egypt

France Italy Hungary Mexico

Mixed Economic System

• Strengths and Weakness vary by country

• Generally these countries experience the same ups and downs

that market economies like the United States experience