Economic Systems
Command, Market, and
Traditional
GPS and E.Q.
• GPS: SS6E5a. Compare how traditional,
command, and market systems answer
the basic economic questions (What, how,
and for whom to produce).
• E.Q. How do different economic systems
answer basic economic questions?
Definitions:
ECONOMIC SYSTEM: The way in which a
country manages the production and
distribution of goods and services.
Quota: Government limits the number/
amount of an item
Scarcity: Limited supply of something
All economic systems must answer 3 basic
economic questions.
1. WHAT TO MAKE?
2. HOW TO MAKE IT?
3. WHO GETS IT?
WHAT ARE THE THREE MAJOR
ECONOMIC SYSTEMS?
1. Traditional
2. Command
3. Market
1.TRADITIONAL ECONOMIC
SYSTEM
• People are expected to do what their parents
did.
• People are rich or poor based on their social
level.
• Farming, hunting/gathering, and cattle herding
are examples of a traditional economy.
• No country in Europe today has this system.
2. COMMAND ECONOMIC
SYSTEM
• A government committee decides what job a
person will do and what/how much a company
will make.
• The government owns all the businesses.
• The government assigns each worker a quota
to meet.
• The former Soviet Union was an example of a
command economy. Russia’s government has
allowed some individuals to own some
businesses.
3. MARKET ECONOMIC SYSTEM
aka “free enterprise”,
capitalism” or “laissez-faire”
• Buyers and sellers make decisions based on
marketplace prices.
• Law of supply (amount of goods) and demand
(how many people want the goods) determines
price people pay.
• Individuals own businesses.
• The most of Europe is a market economy. The
U.K. is the most free (few government rules)
• Now that you know the three major economic
systems, REMEMBER that no system is
perfect and no system exists by itself.
• Most economies are MIXED.
CRCT Test Prep page 145-146
375. In the U.K., who decides which goods will be produced
and sold?
Business owners
376. Which country owns most of the large and important
industries within its borders?
Russia
377. Which is LEAST likely to be found in Europe?
Traditional economy
Summary
• Create a Venn diagram to compare and contrast
the similarities and differences between a
COMMAND and MARKET economy.
• As you complete your Venn diagram, keep in
mind the three basic economic questions that
ALL economic systems must answer............
– WHAT TO MAKE ?
– HOW TO MAKE IT ?
– WHO GETS IT ?
Compare/Contrast Economic
Systems
Command
Market
Compare/Contrast Economic
Systems
Government
committee tells you
what, how, and for
whom to produce.
Command
What,
how, and
for whom
to
produce?
Individuals decide
based on the
market what, how,
and for whom to
produce.
Market