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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