DR. T. D. MITCHELL
BONNEVILLE HIGH SCHOOL
IDAHO FALLS, IDAHO
Economics: concepts and choices, 2011. Holt McDougal
Economic Systems
Introduction to Economic Systems

Objectives

Identify the three main types of economic systems.

Understand how a traditional economy operates, including its
advantages and disadvantages.

Analyze how modern forces are changing traditional
economies.
Economics: concepts and choices, 2011. Holt McDougal
Traditional Economy
A system in which families, clans, or tribes make economic decisions
based on customs and beliefs.
Economics: concepts and choices, 2011. Holt McDougal
Command Economy
In a command economy, the government decides what goods and
services will be produced, how they will be produced, and how they
will be distributed.
Economics: concepts and choices, 2011. Holt McDougal
Market Economy
A market economy is based on individual choice, not government
directives. Consumers and producers drive the system.
Economics: concepts and choices, 2011. Holt McDougal
Characteristics of a Traditional Economy

Trait1: Advantages and Disadvantages

A traditional society produces what best ensures its
survival. The methods of production are the same they
have always been.

Little disagreement over economic goals and roles.

Resists change; less productive.

No choice in jobs members may be better suited to do.
Economics: concepts and choices, 2011. Holt McDougal
Characteristics of a Traditional Economy

Trait 2: Under Pressure to Change

Around the world, traditional economies are under
pressure to change.

Media has bombarded traditional societies with images of
what the world outside there group.
Economics: concepts and choices, 2011. Holt McDougal
Comparing Economic Systems
Communism
Socialism
Market System
Who owns
resources?
Government
Government
owns basic
resources
All resources
privately owned
How are
resources
allocated?
Government
planners decide
how resources
are used
Government
planners allocate
basic resources
Market forces
allocate
resources
Government
makes all
economic
decisions
Government
makes decisions
in the basic
industries
Government’s
role limited
What role does
government
play?
Economics: concepts and choices, 2011. Holt McDougal
Command Economy

Centrally planned

Government planning

Socialism and Communism


Authoritarian
Impact of Command
Economies
Economics: concepts and choices, 2011. Holt McDougal
Signs of Economic Reform in North Korea
Economics: concepts and choices, 2011. Holt McDougal
A NEW VIEW OF
ECONOMICS
Became involved in radical politics in
college.
Traveled to different countries,
landing in London.
Became aware of factory worker
struggles.
Whole industrial system was based on
exploitation of workers.
Believed conflict between
management and labor was
inevitable.
Communism eventually collapsed in
the 1990s. And fell into disfavor.
Economics: concepts and choices, 2011. Holt McDougal
Market Economy

Self-interest

Private property rights

Market
Economics: concepts and choices, 2011. Holt McDougal
• Buyers and sellers are
free to own private
property.
• Buyers and sellers
must be free to
operate with minimal
government
intervention
• When buyer and seller
agree to do business
together, each
believes that the
benefits outweigh the
costs.
Private
Property
Limited
Government
Voluntary
Exchange
• Sellers are free to
attempt to get the
business of others by
offering the best deal.
• Buyers and sellers are
able to concentrate
their efforts in areas
where they have an
advantage.
Competition
Consumer
Sovereignty
Economics: concepts and choices, 2011. Holt McDougal
Specialization
Business Revenue
Sell Goods and
Services
Product
Market
Consumer Spending
Buy Goods and
Services
Taxes, Regulations, Laws
Businesses
Payments for
Resources
Government
Households
Safety Net, Public Goods
Buy Productive
Resources
Factor
Market
Economics: concepts and choices, 2011. Holt McDougal
Sell land, labor,
capital,
entrepreneurship
Income from
resources
Circular Flow of Market Economies

Product markets

Factor markets

Circular flow
Economics: concepts and choices, 2011. Holt McDougal
Impact of Market Economies

Advantages

Disadvantages

Economic and political
freedom

No mechanism for providing
public goods and services

Consumer choice

No safety net

Freedom to develop
interests and talents

Problems without government
regulation

Little government control

Industrial consequences

profits
Economics: concepts and choices, 2011. Holt McDougal
Modern Economies


Life in a mixed economy
Types of mixed economies

U. S. – driven by private
ownership and markets

Europe – government more
heavily involved

Sweden – government owns
about one-third of all
Swedish companies
Economics: concepts and choices, 2011. Holt McDougal
Trends in Modern Economics


Trend 1: Changes in ownership

Nationalize

Privatize
Trend 2: Increasing global ties

Global economy

Cross-border business partnerships
Economics: concepts and choices, 2011. Holt McDougal
E-Commerce Competition
Economics: concepts and choices, 2011. Holt McDougal
Final
Thought
Ask five
economists and
you'll get five
different answers
- six if one went
to Harvard.
Edgar Fiedler
Economics: concepts and choices, 2011. Holt McDougal