Economic systems overview

Economic Systems


Problems All Economies Face

Scarcity forces all
countries to answer
these 3 questions

Scarcity leads to
conflict


Do All Countries Answer These
Questions The Same Way?

• No
• Conflicts arise in all economies


Different Countries Use Different
Systems To Answer These Questions
Major Economic Systems Include:

Market
Traditional
Command


Market Economic System
•

•

•

Also known as Capitalism, Free Market, or Free Enterprise
Defined: ownership of resources and means of production by
individuals, basically free of government control in deciding
goods and services produced
Ownership of Resources: Productive resources privately owned
and operated


Market Economic System
•

Allocation of Resources: Resources are obtained through the lure
of profits in the market

•

Role of Government: Government only tries to make sure there
is some competition and provides some public goods


Market Economic System

• Goals: Profit for individuals, people are
motivated by economic rewards
• Methods: Competition, supply and demand
• Characteristics: Private property,

specialization, minimal government regulation
• Political System: Democracy/Parties
• Current World Examples:

Switzerland

Canada

Australia

Chile

Argentina

South Africa


Command Economic System
•

Defined: An economy in which all of the major economic
questions are answered by a central authority

•

Ownership of Resources: All Productive resources are owned
and operated by the government


Command Economic System

•

Allocation of Resources: Central planning group directs all
resources

•

Role of Government: Government makes all decisions


Command Economic System
• Goals: Equal distribution of income
• Methods: Revolution to gain control, no
opposition forces allowed
• Characteristics: no private property, one political
party
• Political System: Totalitarian
• Current and Former World Examples:

Cuba

North Korea

China

Former Soviet Union


Traditional Economic System
•

•
•
•

Defined: An economic system that does things as it always has
Ownership of Resources: All productive resources are owned by
families
Allocation of Resources: Based of customs and traditions within
the tribe
Role of Government: Tribes play some role in making economic
decisions


Traditional Economic System
• Goals: Keep things how they have always been
• Methods: Customs and traditions passed down through
family lineage
• Characteristics: Children follow in parent’s footsteps, lack of
economic growth
• Current Examples:Aborigines Australia

Mbuti Pygmies of the Congo

Kung Bushmen of Africa

• Political System: Tribal Organizations


No Pure System Is Perfect: Market
Strengths:

• Able to change gradually
• Individual freedom for all
• Lack of government
Interference
• Variety of goods and
services
• High consumer
satisfaction
• Promotes economic
freedom and growth

Weaknesses:
• Does not protect the
young, sick, old who
cannot work
• Market failures happen
leading to lots of ups
and downs
• Doesn’t promote
economic security,
equity, or efficiency as
well as other systems


No Pure System Is Perfect:
Command
Strengths:
• Things can be
changed
dramatically in a

short time
• Promotes economic
security, efficiency,
and equity

Weaknesses:
• Does not meet the needs and
wants of consumers
• Lacks effective incentives to get
people to work
• Needs a large bureaucracy
which consumes resources
• Inflexible for day-to-day
changes
• New and different ideas
discouraged, people can’t be
individuals
• Doesn’t promote: economic
growth or freedom


No Pure System Is Perfect:
Traditional
Strengths:
• All members of the
community have
defined roles
• Stable, predictable,
and continuous life
• Promotes: economic

security and equity

Weaknesses:
• Discourages new
ideas or ways of
doing things
• Stagnation and lack
of progress
• Doesn’t promote
economic growth or
freedom


If No Pure System Is Perfect Then
What?
• Most countries in the world are a blend of different elements
• They are called mixed or combination systems
•

Market

Command

Economies


Mixed Economic System
•

Defined: A system in which economic questions are answered by

a combination of command and market methods

•

Ownership of Resources: Basic utilities, other important
resources government owned and operated; the rest privately
owned and operated


Mixed Economic System
•

Allocation of Resources: Government plans where resources go
for key industries

•

Role of Government: Government directs its plans for the
biggest, key industries only


Mixed Economic System

• Goals: Equal distribution of income
• Methods: High Taxes
• Characteristics: Limited competition, lots of
government planning, many services paid for
by government: health, education, welfare
• Current World Examples:

England

Germany

Sweden

Egypt

France
Italy
Hungary
Mexico
• Political System: Socialist democracy, political parties voted in


Mixed Economic System
•

Strengths and Weakness vary by country

•

Generally these countries experience the same ups and downs
that market economies like the United States experience