Economic Systems
Economic Systems
3 Types of Economic Systems
▪ Traditional
▪ Command
▪ Market/Capitalism
Traditional Economic System
▪ People rely on farming and very simple barter trading.
▪ Producers and consumers make choices based on what has been done in the past.
▪ Often economic decisions are handed down from generation to generation.
▪ Example – Farmer
Command Economic System
▪ The most important aspect of this type of economy is that all major decisions related to the production, distribution, commodity and service prices, are all made by the GOVERNMENT.
▪ The GOVERNMENT decides what goods will be produced, and how they will be distributed.
▪ Is run by a strong centralized government and tends to focus on industrial goods.
▪ Benefits
▪ Prices are controlled
▪ People know how much everything will cost
▪ Luxury items are priced high
▪ Clothing & Housing low
▪ Health care & education provided for free
▪ Problems
▪ Trying to predict what type of goods people will need
▪ Can lead to having too many of one good and not enough of another
Capitalism/Market Economic System
In a market economy, national and state governments play a minor role.
▪ CONSUMERS and their buying decisions drive the economy.
▪ A market economy is controlled by the forces of supply and demand.
▪ Allows business owners to compete in the market with little government control. However, the role of government is important.
Capitalism/Market Economic System
▪ Decisions are left to businesses and individuals and the forces of supply and demand to determine what is produced and its value.
▪ Example - USA
Market Economy
▪ Benefits
▪ Consumers can find the goods they need
▪ Free to earn enough money as they want
▪ Problems
▪ Goods and services go up in price
▪ If a company does not manage its money well it can go out of business (people loose their jobs & income)
There are no pure free market or pure command economies in the world. All economies are mixed. They fall some where along a continuum as shown above.
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