ECON 102.1
TYPES OF ECONOMIC SYSTEMS
OBJECTIVES:
1. HOW ARE THE 3 BASIC ECONOMIC QUESITONS ANSWERED IN
TRADITIONAL, COMMAND AND MARKET ECONOMIES
2. WHAT ARE THE ROLES OF SELF-INTEREST AND INCENTIVES IN A
MARKET ECONOMY
3. WHAT TYPE OF MIXED ECONOMIES EXIST TODAY
ECON 102 IS DEDICATED TO THE MSA PROGRAM
ECON 102
DICTIONARY
• TRADITIONAL
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ECONOMY
COMMAND ECONOMY
MARKET ECONOMY
MARKET ECONOMY
MARKET
INCENTIVE
SELF-INTEREST
• MIXED ECONOMY
• AUTHORITARIAN
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SOCIALISM
COMMUNISM
CAPITALISM
DEMOCRATIC
SOCIALISM
3 BASIC ECONOMIC QUESTIONS
• 1) What to produce
• 2) How to produce
• 3) For whom to produce
RESPONSE TO THE 3
• HOW TO ANSWER THE 3 ECONOMIC QUESTIONS IS
DETERMINED BY A NATION’S ECONOMIC SYSTEM.
• There are 4 types of economic systems
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Traditional
Command
Market
Mixed
But in reality all economies are mixed, there are no pure economies
today.
TRADITIONAL ECONOMY
• To answer the 3 basic economic questions,
these societies look to the past.
• Contemporary economic activities are
based on the collection of rituals, habits,
laws, and religious beliefs developed by
the group’s ancestors.
COMMAND ECONOMY
• To answer the 3 basic economic questions, these
societies look towards government officials (central
planners) for answers.
• They have the power to decide what products will be
made and how these products are produced.
• Individual have little to no say in this economy.
• Pure command does no longer exists, but in the past
they had, Middle Ages, Zhou Dynasty, ancient Egypt
MARKET ECONOMY
• To answer the 3 basic questions, this economy
looks to the individual for answers.
• People can buy, sell, and produce anything they
want.
• The free exchange of goods and services is
referred to as the market.
Market as a regulator
• Adam Smith first person to explain market regulation
• He contended that when the government is not involved
in the economy, the market is driven by self-interest---the impulse that encourages people to fulfill their needs
and wants.
• The choices we make benefit society as well as us.
• Incentives help motivate people to work harder.
MIXED ECONOMIES
• THIS ONE IS OBVIOUS
THREE MAIN CATEGORIES
1) Authoritarian Socialism
2) Capitalism
3) Democratic Socialism
Authoritarian Socialism
• Also called Communism
• Closest to pure command model
• Government controls nearly all factors of
production.
Capitalism
• U.S.A.
• Closet to the market model
• Individuals answer all the economic
questions
• Governments may enact regulations, but
in a limited fashion
• Examples???????????????
Democratic Socialism
• Government owns some of the factors of
production
• Usually limited to key industries of national
concern
• Individuals are able to influence the economic
planning through the election of government
officials