Economic Systems
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An economic system is the way a country decides w h o g e t s w h a t.
What will we produce? How will we deliver it? Who will consume it?
Here are three economic systems, or economies.
Traditional Economy
Command Economy
Market Economy
Ivan and Olga keep it real!
Ivan and Olga are farmers in
a traditional economy. They
do things the way their
grandparents did. They
produce goods and provide
services that they consume
themselves and share with
their neighbors.
The government takes over!
An official drives up and
announces that their farm
now belongs to the
government. He tells them
what to grow, how to grow
it, and how much to grow. A
q u o t a is the amount they
are commanded to produce.
Leck wants to make money!
Their son owns the farm
now, and he decides what to
produce based on what will
make the most money in the
market. The government
stays out of it. He is free to
produce what he predicts
consumers will want.
The Old Way.
The Government Way.
The Get Rich Way.
Continuum
A line going from one extreme to the other extreme.
Where are you on the wisdom continuum?
teacher
FOOLISH-----------------------------------------------------------/\----------WISE
Mixed Economy
In a pure market economy, individuals and businesses make all the decisions. You would
decide what to produce and how much to charge; I would decide whether to buy it.
In a pure command economy, the government makes all the decisions. The Soviet Union
was a command economy. The government decided who did what and who got what.
Most countries are mixed, on a continuum between pure command economy and pure
market economy; the government is involved in the market economy. How?
 The government pays money to help farmers when there is a drought.
 The government creates laws to make sure workers are safe.
 The government protects consumers from false advertising.
 The government makes it illegal to sell certain goods to children.
 The government restricts certain business activities, like drilling for oil.
All packaged food sold in the US must have this label. It gives
information about the nutritional value of the food. Are businesses free
to produce what the market wants? Yes. Sounds like a market economy.
Does the government command businesses to use this label? Yes. Sounds
like a command economy. It’s mixed: market economy with government
regulation. You are free to produce, distribute, consume--but you have to
follow the rules. Drive anywhere—but wear your seatbelt. It’s the law!
Economic Systems
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MIXED
MARKET
This chart shows a mixed economy continuum. The far left is pure command; the far right is pure
market. Below are the economies of four fictional countries. Place each economy on the continuum.
Mezreel
Hargang
Galma
Soloris
Mezreelites are free to create whatever business they think will make money. Toxic
chemicals in toys? Child labor? Dangerous factories? Full speed ahead!
In Hargang, people run small businesses; the government runs big businesses. National
steel! National oil! National ports! Now you build the ships. Big drives small!
Every aspect of Galma’s economy is determined by the government. You! Grow 100
tons of turnips this year. You! Teach social studies. The government knows best!
Solorans make free economic decisions, but the government has strict rules. New car
design; wear seatbelts. Delicious cookie; nutrition label. Go ahead, but obey!
1. Which country has a mixed economy that is still heavily command. Describe that economy.
2. Which country has a free market economy? Describe that economy.
3. Which country has a command economy? Describe that economy.
4. Which country has a mixed economy that is strongly market-driven? Describe that one.
5. The Soviet Union was similar to one of these countries. Which one? In what ways?
6. Which country do inventors and business leaders love? Why?
7. Which country is most similar to France, Germany, UK? Why?