Economic Systems
Problems All Economies Face
Scarcity forces all
countries to answer
these 3 questions
Scarcity leads to
conflict
Do All Countries Answer These
Questions The Same Way?
• No
• Conflicts arise in all economies
Different Countries Use Different
Systems To Answer These Questions
Major Economic Systems Include:
Market
Traditional
Command
Market Economic System
• Also known as Capitalism, Free Market, or
Free Enterprise
• Defined: ownership of resources and
means of production by individuals,
basically free of government control in
deciding goods and services produced
• Ownership of Resources: Productive
resources privately owned and operated
Market Economic System
• Allocation of Resources: Resources are
obtained through the lure of profits in the
market
• Role of Government: Government only
tries to make sure there is some
competition and provides some public
goods
Market Economic System
• Goals: Profit for individuals, people are motivated
by economic rewards
• Methods: Competition, supply and demand
• Characteristics: Private property, specialization,
minimal government regulation
• Political System: Democracy/Parties
• Current World Examples:
Switzerland
Canada
Australia
Chile
Argentina
South Africa
Command Economic System
• Defined: An economy in which all of the
major economic questions are answered by
a central authority
• Ownership of Resources: All Productive
resources are owned and operated by the
government
Command Economic System
• Allocation of Resources: Central planning
group directs all resources
• Role of Government: Government makes
all decisions
Command Economic System
• Goals: Equal distribution of income
• Methods: Revolution to gain control, no
opposition forces allowed
• Characteristics: no private property, one
political party
• Political System: Totalitarian
• Current and Former World Examples:
Cuba
North Korea
China
Former Soviet Union
Traditional Economic System
• Defined: An economic system that does
things as it always has
• Ownership of Resources: All productive
resources are owned by families
• Allocation of Resources: Based of customs
and traditions within the tribe
• Role of Government: Tribes play some role
in making economic decisions
Traditional Economic System
• Goals: Keep things how they have always been
• Methods: Customs and traditions passed down
through family lineage
• Characteristics: Children follow in parent’s
footsteps, lack of economic growth
• Current Examples:Aborigines Australia
Mbuti Pygmies of the Congo
Kung Bushmen of Africa
• Political System: Tribal Organizations
No Pure System Is Perfect: Market
Strengths:
• Able to change
gradually
• Individual freedom for
all
• Lack of government
Interference
• Variety of goods and
services
• High consumer
satisfaction
• Promotes economic
freedom and growth
Weaknesses:
• Does not protect the
young, sick, old who
cannot work
• Market failures happen
leading to lots of ups
and downs
• Doesn’t promote
economic security,
equity, or efficiency as
well as other systems
No Pure System Is Perfect:
Command
Strengths:
• Things can be
changed
dramatically in a
short time
• Promotes economic
security, efficiency,
and equity
Weaknesses:
• Does not meet the needs and
wants of consumers
• Lacks effective incentives to
get people to work
• Needs a large bureaucracy
which consumes resources
• Inflexible for day-to-day
changes
• New and different ideas
discouraged, people can’t be
individuals
• Doesn’t promote: economic
growth or freedom
No Pure System Is Perfect:
Traditional
Strengths:
• All members of the
community have
defined roles
• Stable, predictable,
and continuous life
• Promotes: economic
security and equity
Weaknesses:
• Discourages new
ideas or ways of
doing things
• Stagnation and lack
of progress
• Doesn’t promote
economic growth or
freedom
If No Pure System Is Perfect Then
What?
• Most countries in the world are a blend of
different elements
• They are called mixed or combination
systems
•
Market
Command
Economies
Mixed Economic System
• Defined: A system in which economic
questions are answered by a combination
of command and market methods
• Ownership of Resources: Basic utilities,
other important resources government
owned and operated; the rest privately
owned and operated
Mixed Economic System
• Allocation of Resources: Government
plans where resources go for key industries
• Role of Government: Government directs
its plans for the biggest, key industries only
Mixed Economic System
• Goals: Equal distribution of income
• Methods: High Taxes
• Characteristics: Limited competition, lots of
government planning, many services paid for by
government: health, education, welfare
• Current World Examples:
England
Germany
Sweden
Egypt
France
Italy
Hungary
Mexico
• Political System: Socialist democracy, political parties voted in
Mixed Economic System
• Strengths and Weakness vary by country
• Generally these countries experience the
same ups and downs that market
economies like the United States
experience