Economic Systems
3 Types of Economic Systems
 Traditional
 Command
 Market/Capitalism
Traditional Economic System
 People rely on farming and very simple barter trading.
 Producers and consumers make choices based on what has been done in the past.
 Often economic decisions are handed down from generation to generation.
 Example – Farmer
Command Economic System
 The most important aspect of this type of economy is that all major decisions related to the
production, distribution, commodity and service prices, are all made by the
GOVERNMENT.
 The GOVERNMENT decides what goods will be produced, and how they will be
distributed.
 Is run by a strong centralized government and tends to focus on industrial goods.

Benefits
 Prices are controlled
 People know how much everything will cost
 Luxury items are priced high
 Clothing & Housing low
 Health care & education provided for free

Problems
 Trying to predict what type of goods people will need
 Can lead to having too many of one good and not enough of another
Capitalism/Market Economic System
In a market economy, national and state governments play a minor role.
 CONSUMERS and their buying decisions drive the economy.
 A market economy is controlled by the forces of supply and demand.
 Allows business owners to compete in the market with little government control. However,
the role of government is important.
Capitalism/Market Economic System
 Decisions are left to businesses and individuals and the forces of supply and demand to
determine what is produced and its value.
 Example - USA
Market Economy

Benefits
 Consumers can find the goods they need
 Free to earn enough money as they want

Problems
 Goods and services go up in price
 If a company does not manage its money well it can go out of business (people
loose their jobs & income)
There are no pure free market or pure command economies in the world. All economies are
mixed. They fall some where along a continuum as shown above.