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Chapter 2:
Economic
systems
Chapter Outcomes
Once you have studied this chapter you should be able to
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describe the three central economic questions
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describe the major differences between traditional, command,
market and mixed economies
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describe the salient features of the market economy
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briefly describe the contributions of Adam Smith, Karl Marx and
John Maynard Keynes to economic science
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Different economic systems
• What?
• How?
• For whom?
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The traditional system
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The command system
See Box 2-1 Classifying economic systems (Textbook page 27)
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The market system
See Box 2-2 The winner takes all (Textbook page 30)
See Box 2-3 The miracle of the market economy
(Textbook page 31)
See Box 2-4 The functions of prices in a market
economy (Textbook page 32)
See Box 2-5 The role of money in a market system
(Textbook page 32)
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The mixed economy
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South Africa’s mixed economy
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The men behind the systems:
Smith, Marx and Keynes
• Adam Smith (1723–1790)
• Karl Marx (1818–1883)
• John Maynard Keynes (1883–1946)
See Box 2-6 Some important authors and books in the history
of economic thought (Textbook page 34)
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Important concepts
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Tradition
Command
Market
Economic system
Traditional system
Command system
Market system
Market prices
Incentives
Competition
Negotiation
Capitalism
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Socialism
Property rights
Coordinating mechanism
Free-market economy
Mixed economy
Division of labour
Money
Barter system
Privatisation
Nationalisation
Perfect competition
Imperfect competition
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