Chapter 2, Section 1
Economic Systems
Essential Question:
 Identify the three “pure” economic systems
and explain how the 3 basic questions are
decided in each.
 Explain why “pure” E.C. do not exist
 Identify the three “mixed” economic systems
and explain how the 3 basic questions are
decided in each.
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Chapter 2, Section 1
Economic Systems
Economic Systems:
 All societies have an economic system or
economy, an organized way of providing for
the wants and needs of the people in that
society
 Economic System-> Economy (same thing)
 Economic Model= possible, but non-realistic
economic system.
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Chapter 2, SECTION 1
Economic Systems
What/How/Who Traditional:
 Traditional economic model
 What to produce and how to produce are determined by
custom and tradition
 For who to produce is decided by the leaders of the
community
 Pro’s- Everyone knows what to produce (no
uncertainty
 Con’s- new ideas and alternatives are discouraged
leading to waste.
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Chapter 2, SECTION 1
Economic Systems
What/How/Who Command:
 Command economic model
 All three basic economic questions are answered
by a central authority (govt.) The advantages- Major changes in production can
happen quickly, little uncertainty about what to
produce (govt. tells you what to produce)
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Chapter 2, SECTION 1
Economic Systems
What/How/Who Command (cont.)
 The Disadvantages:
 Consumer needs not met
 Little incentive to work hard
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Chapter 2, SECTION 1
Economic Systems
What/How/Who Market:
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 Market economic model
 3 basic questions answered by private producers
and consumers with NO interference (govt.)
 The advantages Can make production changes quickly
 Producers and Consumers are free to buy/sell (or
not)
 Most members of this system get their needs
met
 Variety of Goods and Services
 high consumer satisfaction
Chapter 2, SECTION 1
Economic Systems
What/How/Who Market (cont.)
 The disadvantages Does not provide for the needs of all in the society
(only those who can afford goods or services).
 Does not provide enough important non-profit
services such as education or health care
 Lots of uncertainty about the answers to the 3 basic
questions (you don’t know what will be produced
for you OR what you will produce)
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Chapter 2, SECTION 1
Economic Systems
What do the “models” have in common?
 They DO NOT EXIST
 In modern society, scarcity does not allow
for Pure economic models where the rules
are inflexible.
 As a result we have mixed economies based
upon the economic models
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Chapter 2, SECTION 1
Economic Systems
What is a mixed economy?
 All MODERN economies are mixed btwn. Govt. and
the people
 Why mixed? Both people and govt. need to give input
to ensure that the needs of society are addressed
 Even in oppressive countries like N. Korea, people are
allowed to make SOME economic decisions.
 There are three examples of “Mixed Economies” The
differences are based on how the 3 basic economic
questions are answered.
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Chapter 2, SECTION 1
Economic Systems
Authoritarian Socialism (Communism)
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 In this Economy, the govt. makes almost all
economic decisions and controls all the
factors of production.
 The govt. answers most of the 3 basic
economic questions based on the NEEDS of
ALL members of society
 This system puts the needs of all above the
wants of any.
Chapter 2, SECTION 1
Economic Systems
Capitalism
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 In this Economy, the people make most of the
economic decisions with limited oversight by the
government.
 The factors of production are owned by individuals
who produce based on what makes the most profit
(usually what satisfies the greatest needs of
society).
 Since individuals control the production decisions,
they also control the price meaning that sometimes
people do not receive the goods/service that they
need b/c they cannot afford it.
Chapter 2, SECTION 1
Economic Systems
Democratic Socialism
 This economic system is seen as being in the
middle of communism and capitalism.
 Some of the factors of production are owned by
govt. and some are controlled by individuals.
 The idea is that certain products such as
education or health care are universal and as
such should not be limited to only those who
can afford it.
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