Economic Systems
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Objectives
1. To compare different types of
economic systems
2. To identify characteristics of the
private enterprise system
3. To explore the four types of
economies the United States has
experienced
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What is an Economic System?
• The way a society produces goods &
services
• The way a society provides and
distributes goods & services to its
citizens
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Three Main Types of Economic
Systems
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Strong Command/Communism
• Maintains strong governmental control
• Requires all productive resources to be
owned and operated by the government
• Forbids competition
• Permits little to no freedom in selecting a
career and workplace
• Practices heavy taxation
• Occurs in North Korea, Cuba and People’s
Republic of China
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Strong Command/Communism
• Advantages
– allows for large changes to quickly be made
– chooses jobs for everyone, including government
provided medical and social services
• Disadvantages
– lacks in meeting consumer needs
– prevents people from making their own economic
decisions
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Moderate Command/Socialism
• Maintains medium
governmental control
• Practices governmental
control in key industries,
such as utilities and
transportation
• Allows private ownership
in only non-vital industries
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Moderate Command/Socialism
• Allows competition in smaller,
private sector
• Permits the right to choose career
and place of employment
• Practices high taxation
• Occurs in Sweden and France
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Moderate Command/Socialism
• Advantages
– provides medical care, education and
social security benefits
– allows businesses and individuals to keep
some profits for their efforts
• Disadvantages
– discourages small business ownership by
heavy taxation and diminished income
– controls important business sectors
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Market/Capitalism
• Derives from the principle of individual
rights
• Practices little governmental control
• Encourages private ownership of
business in all sectors
• Supports competition in all areas
• Allows full freedom to choose career and
workplace
• Practices moderate taxation
• Occurs in the United States, Hong Kong
and Germany
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Market/Capitalism
• Advantages
– allows freedom to make economic decisions
– practices low amount of governmental control
• Disadvantages
– means sometimes great personal and financial
risks must be taken with little or no guarantee of
even a minimal return
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Traditional Economies
• Occurs in less developed countries
• Allows economic activities to be ruled by
tradition
• Ranks religious and cultural values as more
important than economics
• Determines jobs according to ancestors’ jobs
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Traditional Economies
• Advantages
– raises everyone to know his or her
station in life
– provides a stagnant and unchanging
economic life because of resistance
to change
• Disadvantages
– stifles new ideas, technology and
efficiency
– differentiates the economic roles
and status of men and women
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Questions to Distinguish Economic
Systems
1. What is the degree of
governmental control?
2. What freedoms are the people
allowed?
3. Is competition allowed? If so, to
what degree?
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Adam Smith, Karl Marx, John
Maynard Keynes
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Private Enterprise System
• Is synonymous with the Market/Capitalist economy
• Emphasizes private sector
• Allows ownership of resources and businesses by
individuals in society
• Permits individuals, rather than government, to
make economic decisions
• Allows individuals to receive benefits and wages
from employers
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Private Enterprise System
• Individuals have high levels of freedom
to:
– buy desired goods & services
– produce & sell items
– choose any career & workplace
“People must have the freedom to buy, the
freedom to sell, the freedom to try and the
freedom to fail.”
Adam Smith
Wealth of Nations
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Private Enterprise System
• Motivates businesses
to succeed by:
– promoting competition
– meeting the wants &
needs of customers
– encouraging profits
• Promotes entrepreneurship as an important
aspect of an economy
– an entrepreneur organizes, manages and
assumes the risks of a business or enterprise
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Private Enterprise System
Characteristics of an Entrepreneur:
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Four Basic Economies the U.S. has
Experienced:
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Agricultural Economy
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Industrial Economy
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Service Economy
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Information Economy
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Quiz
1. What are the three main economic
systems?
2. (T/F) Complete governmental control is a
characteristic of moderate
command/socialism.
3. What is another name for the private
enterprise system?
4. What three freedoms do individuals have
in a private enterprise system?
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Quiz
5. List four characteristics of an
entrepreneur.
6. Identify one feature for each of the
four economies the United States
has experienced.
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Acknowledgements
Krista Scott
Production Coordinator
Jennifer Donaldson
Graphics Editor
Geoff Scott
Production Manager
GW Davis
Executive Producer
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CEV Multimedia, Ltd.
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