Traditional Economy

Economic Systems
Traditional Economy
We Need A System
• We know the there are limited resources and
everybody needs to deal with the problem of
• So what kind of systems have we developed to
deal with this?
Traditional Economy
Traditional Economy
• Overall goal is survival
• It is about the group, what the individual
wants is really not important.
Advantages of a Traditional Economy
• Everyone knows their role.
• Life is generally predictable and stable.
• Almost everyone is taken care of, provided you
are doing your part.
Disadvantages of a Traditional
• This system resists change. It has been the
same for thousands of years.
• This lack of progress leads to a lower standard
of living.
Command Economy
Command Economy
• Government decides what goods and services
are produced.
• Individual consumers are not considered
• It is what the government thinks you need
Advantages In A Command Economy
• Everybody has a job.
• The Economy can change direction
Disadvantages In A Command
• This system in not designed to meet the
“wants” of consumers.
• The basic incentive of this system is to do just
enough to meet quotas.
Market Economy
Market Economy
• It is all about the consumer and individual
• As a consumer you make decisions based on
you own economic interests.
Advantages of a Market Economy
• High degree of individual freedom
• Relatively small degree of government
interference (Mixed Economy)
• Seemingly unlimited variety of goods and
services available to the consumers.
Disadvantages of a Market Economy
• The government does not provide for the
basic needs of everyone.
• The government does not provide certain
services that people value.
Which Economic System Are We?
• Mixed Economy
• Capitalism
• Based on 4 Important Principles
- Private Property
- Freedom of Choice
- Profit
- Competition
Fundamentals of a Market Economy
• Private property rights - rights of individuals
and groups to own property.
• Market – any place or situation in which
people buy and sell resources and goods and
• Property rights are enforced by law
• Would this system work if buyers could not
trust sellers?
Limited Government
• Laissez faire – French term meaning “leave
things along”.
• Should the government leave the markets
• How does the government protect people
from the market?
Voluntary Exchange
• Two parties involved make an exchange
usually a good or service for money.
• This is guided by self interest
Consumer has the power
• A consumer can buy whatever they want.
• This creates competition within a market
• Self Interest – Both the buyer and seller use
self interest to get what they want.
• People do what they do best
• A teacher can make money by teaching but
how can he or she get groceries for the week.
• Instead of growing them we go to the store
with money earned by teaching and buy
Circular Flow Model
• This shows how households and business
meet in a market economy.
Product Market
• Market for goods and services
• The suppliers of this market are businesses
• The goods are sold for money (profit) which
keep the businesses going
Factor Market
• This market is where businesses go to get
things for production
• This means the factors of production.
We are included in this. We are the laborers,
land owners, owners of capital.
• We get income for doing this
• Firms get resources from the product market
which are used to produce goods.
Mixed Economy
• Most common economic system in the world.
• It has elements of all three systems
• In a mixed economy one of the three systems
dominates and is the most prevalent in that
• The U.S. is a mixed economy, which of the
three systems does the U.S. use the most?
How does the U.S. use each system?
The free market has led to some
interesting products!
What about other countries?
What’s the debate about Socialism?
Government pays for…
Child care ages 1-5
School ages 6-16
More schooling and college if you want to go
Health care
Time off for raising a family
• How do they pay for this?
• Citizens in Sweden pay about 60% of their
income in taxes.
Politics of A Market Economy
• Politicians need your vote
• An almost endless amount of research goes
into how people are likely to vote based on
who they are, and how they live.
• If the researchers do their job correctly they
will know who you will vote for before you
enter the booth.