Ch. 12 Economic Systems
Section 3: Characteristics of Major Economic Systems
Notes
III. Characteristics of Major Economic Systems
We will look at 4 different economic systems:
A. Traditional
B. Market
C. Command
D. Mixed
A.
1.
2.
3.
4.
Traditional Economy
Economic questions answered according to custom and religious beliefs
Found in non-industrial countries
Most are farmers
Today: some areas in Asia, Africa, and Latin America have traditional economy
B. Market Economy (Capitalism, or free market system)
*Economic questions made by privately-owned business owners (free enterprise)
Consumers have freedom to buy what they want
Characteristics of Capitalism
1. Profit: capitalists are motivated by profit
A. Good businesses profit
B. Risk--bad businesses lose money
2. Shares of Stocks
A. Corporations: people buy shares of stock (part of the company)
B. Money from stocks goes to help finance the company
C. If company does well--dividends (money) paid to stock holders
3. Competition
A. Forces better quality
B. Keeps prices low
4. Supply and Demand
A. This determines price
Supply up, prices go down
Demand up, prices go up
C. Command Economy
Economic questions made by the government
Gov. controls means of production--machines, tools, buildings, and land
Gov. makes all business decisions
Ex: socialism and communism
Examples of Command Economy
A. Socialism: an economic system in which the factors of production are owned by the public
and operate for the welfare of all
B. Communism: an economic system in which all means of production--land, mines, factories,
railroads, and businesses--are owned by the government, private property does not exist,and all
goods and services are shared equally
D. Mixed Economies
Today: rare that an economy is solely a market or command
Most are mixed
United States economy—mixed
1. Most believe US is pure capitalism
2. US gov. makes laws to regulate business
Market
Economy
Mixed
Economy
Command
Economy
Private
Ownership of
Means of
Production
Public and
Private
ownership of
means of
production
Public
ownership of
means of
production
Decisions by
consumers and
businesses
determine
economic
activity
Decisions by
consumers and
businesses
and by
government
determine
economic
activity
Decisions by
government
determine
economic
activity.