ECONOMIC SYSTEMS



ECONOMIC SYSTEMS NOTES

Countries answer the 3 Basic Economic Questions differently. What are these 3 Basic Economic Questions?

1. What to produce?

2. How to produce?

3. For whom to produce?

The type of Economic System that a country employs depends on who answers these questions and makes the decisions.

| |Free Market Economy |Command Economy |

|Primary Decision Maker |Individuals and Businesses |Government |

|(Who decides what is produced and consumed?) | | |

|Primary Economic Motive |Profit – The earnings made after all expenses have been |Providing for the needs of ALL citizens |

|(What do people want out of the economy?) |paid. | |

|Who owns the property and resources? |Private ownership – Individuals and Businesses |Public ownership – Centrally owned (owned by the |

| | |government) |

|How are the prices of goods and services |Supply and Demand |Government |

|determined? | | |

|What is the amount of choice in the economy? |Consumers have many different choices due to competition |Consumers have a lack of choice |

|What is the consumer’s role? |The consumer is king – “consumer sovereignty” |None |

| |Consumer preference determines what is produced | |

|What is the government’s role? |Minimal government involvement |The economy is centrally planned |

| | |(100% regulated/controlled by the government) |

Another economic system exists based more on history and tradition than on answering the basic economic questions:

| |Traditional Economy |

|Primary Decision Maker |Decisions are based on customs and historical precedent (traditions) |

|Primary Economic Motive |People often perform the same type of work as their parents and grandparents, regardless of ability or potential. (You are a|

| |farmer because your father trained you to be a farmer.) |

What do they look like?

|Free Market Economy |Command Economy |Traditional Economy |

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PG. 134

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