Starter: Get out the reading on
Types of Economic Activities from
yesterday
Types of Economic Systems
Definition
Means of production: the facilities and
resources needed to make a product. Can
include:
machines
tools
buildings
factories
Basic economic questions
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What to produce (make)?
Who decides what to make?
How to make products?
Who do we make these products for?
Who controls the means of production?
Traditional Economies
• What to produce?
– They produce what they have always produced
• How to produce?
– The way it has always been done
• For whom to produce the products?
– Mostly subsistence economies
• They produce for themselves and their family
Market Economy or Capitalism
• Private ownership of the means of production
(owned by the people)
• Consumers’ demand determines what is
produced
• Examples include the United States, Israel, and
Germany.
• There is free and fair competition: all companies
have the same rules and the government does
not interfere to help some companies over
others.
Market Economy or Capitalism
• In order for there to be free and fair competition, there
should not be any monopolies.
– A monopoly is a company or group that has exclusive control
over a commercial activity or product.
– Monopolies limit free and fair competition because they are
the only source of a product or service. Competition is
necessary because it can keep prices down!
• Under a system of “pure” capitalism, government would
take no part in the economy. In fact, in the United States
and in other capitalist countries, governments do provide
some goods and services such as
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a postal service
highways
public education.
To protect free trade, the government also stops monopolies
from forming.
Mixed Economy or Socialism
• The means of production are controlled by
private individuals and the government.
– The basic philosophy is that, for the good of a society
the state should own and run the basic industries such
as transportation, communications, banking, coal
mining, health care, childcare and the steel industry.
– Private enterprise (individuals) own and run most
other businesses.
• Examples include the United Kingdom, Denmark,
Sweden, France, Saudi Arabia, and Venezuela.
Mixed Economy or Socialism
• Socialists believe that wealth should be
distributed more equally and that everyone is
entitled to certain goods and services.
• The goal of socialism is to provide all citizens with
basic economic needs, so socialist countries are
sometimes known as “welfare states” because
they provide many social services such as
housing, health care, childcare, and pensions for
retired workers. To pay for these services, taxes
are usually high.
Command Economy or Communism
• A command economy is characterized by government (or
central) control/ownership of the means of production.
• The government owns and controls all the major farms and
factories, utilities, and stores.
• There are no purely communist economic systems today,
but examples include North Korea and Cuba, Vietnam and
China (to some extent). The former East Germany and the
U.S.S.R. were also communist before they were disbanded.
• The government decides what products will be made, how
much workers will be paid, and how much things will cost.
• The goal of a communist economic system is to eliminate
social classes, replace competition with cooperation, and
ultimately meet the economic needs of everyone in a
society.