Economic Systems

SS6E5 A

3 Types of Economic Systems

TraditionalCommandMarket

ObjectivesIdentify three questions that all economic

systems must answer.Describe a traditional economyDescribe a command economyDescribe a market economyExplain how most economies have a

mixed economy located on a continuum between a market and command economy

Vocabulary Break

Economic System

the system of production and distribution and consumption

Three Economic Questions

What to produce?How to produce?For whom to produce?

Traditional

A traditional economy is shaped largely by customs and religion.

Economic questions are answered by what happened in the past.

Traditional economies are mainly found in rural areas.

Traditional Economy What to produce?

Just what is needed to take care of yourself and your family

Traditional EconomyHow to produce?

How it was produced in the past

Traditional EconomyFor whom to produce?

You product items for yourself and one’s household

Positives of a traditional economy

PredictableKnowing what your job will be

Knowing the way you will live

Problems with a traditional economy

Lack many resourcesOnly produce enough to live on

Command

In a command economy the government answers the three basic economic question

Sometimes called communism

Command EconomyWhat to produce?

the government determines what to produce

Command EconomyHow to produce?

Government says how to produce

Command EconomyFor whom to produce?

Citizens regardless of market demand

Positives of a command economy

Because the government makes the decisions, people don’t have to worry about employment, housing, education, and healthcare

Problems with a command economy

Consumers get low priority

Little freedom of choiceAll resources are owned by the government

Market Economy

In a market economy, buyers and sellers answer the three economic questions.

All resources are privately owned

Market EconomyWhat to produce?

Producers and consumers decides

Whatever the market demands that will produce a profit

Market Economy How to produce?

By private producers

Market EconomyFor whom to produce?

Consumers who demand the product and are willing to pay

Positives of a market economy

People can start their own businesses

People have choice

Problems with a market economy

The desire for money may lead to poor quality of goods and services

Business owners have to risk losing money

Vocabulary Break

ContinuumA line that goes into infinity or

on and on in both directions

Continuum of Economies

NoIndividual freedom

MostIndividual freedom

Pure Command

Pure Market

Most economies fall in between a pure market and a pure command economy on the continuum