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.