Economic Systems

Traditional, Command, Market, and Mixed

Economic Systems

Economic systems answer the questions:What to produce?How to produce?How to distribute?

Economics is the study of how people use scarce resources to meet unlimited demand. Some people like to think of economics as a study of supply and demand.

Traditional Economy

Customs and habits of the past are used to decide what and how goods will be produced, distributed and consumed.

Jobs are handed down from generation to generation.

Very little change occurs over the generations Primitive tools and methods are used. Farming, hunting and gathering, and cattle

herding are examples of a traditional economy

Command Economy

The government makes the decisions on which goods and services to produce.

Usually in a communist country Workers are told what to produce and how much to

produce within a period of time (quota). The wages earned by employees is set by the

government. The government does NOT always know what the

people need. Luxury items like computers and televisions are priced

high.

Market Economy

Known as capitalism and free enterprise Businesses and farms are owned by individuals or

corporations with no government involvement The law of supply and demand determines the price that

people pay for items There is no true market economy today The US is the closest to a true market economy

Mixed Economy

Most countries are MIXED economies. In a mixed economy decisions are made by

businesses based on consumer demands. However, the government also makes some

decisions:– Regulates trade– Ensures safety of consumers– Protects the environment.

Some examples are the U.K., Germany, Russia, the U.S.