Economic Systems
Types of Economic Systems
Traditional Economic System
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Based on beliefs, customs and ways of doing things
handed down from generation to generation
Developed out of cultural and religious values
Most are outgunned by stronger financial, political and
military forces
Ex: Middle East, Rural parts of Africa and Latin
America
Command Economic System
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Government controls the factors of production and
makes all decisions about their use
Ex: Former Soviet Union, North Korea
Socialism is part of command economy
- government manages some business
Communism is also part of command economy
- resources owned by govt., govt. plans use of all
resources, govt. controls all businesses
Market Economic System
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Individuals own the factors of production and make
economic decisions through free interaction
The government does not intervene
Also called a capitalist economy
Ex: United States, Germany
Also called a mixed economy because the
government controls some industry
6 Major Characteristics of a Market
Economy
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1. Little or no government control
2. Freedom of enterprise- people are free to own and
control factors of production
3. Freedom of choice- buyers make decisions on what
should be produced
4. Private Property- individuals or groups own it
5. Profit incentive- desire to make a profit, people are
moved to make products people want
6. Competition- rivalry among producers or sellers of
similar good to win more business
What system is the United States?
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Some argue that we are a market economy
We do not have a pure market economy
We have a mixed economy (govt. controls some industry)
Mixed- combining characteristics of more than one type
of economy
U.S. examples
Market- malls, restaurants, entrepreneurship
Command- minimum wage, labor laws, martial law
Traditional- “blue laws” restricting activities or sales of
goods on Sunday