ECONOMIC SYSTEMS
Different Economic Systems –
Economic Questions
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WHAT IS ECONOMICS? The study of how resources
are managed in the production, exchange, and use
of goods and services.
Four Types of Economic Systems – 1. Command, 2.
Traditional, 3. Market, 4. Mixed
Different Economic Systems –
Command Economic System
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The Government decides what goods to produce.
The government decides how goods will be
produced
The government decides how they will be
distributed.
Today, there are few Command Economies.
Perhaps the only examples are the communist
countries of Cuba and North Korea.
Different Economic Systems –
Traditional Economic System
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A system in which social roles and culture determine
how goods are made, sold, and bought.
Families, clans or tribes follow customs to meet basic
needs.
All economic systems have some form of traditional
system in them, for example most young people go
in to same type of employment as their parents.
Different Economic Systems –
Market Economic System
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Economic system based on individual choices and
voluntary trade
Also known as a free enterprise system
Individuals and businesses make economic decisions
The market determines the prices and wages
People can choose to enter into a business, or they
may choose to sell their labor to anyone they want.
Consumers are free to spend their money as they
wish.
Different Economic Systems –
Mixed Economies –
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A mixed economy has features of traditional, command,
and market economies.
Both the central govt. and the market forces make
economic decisions.
Most countries today have a mixed economy.
Even though the market economy is characterized by
competition and freedom, the competition is not perfect
and the freedom is not unqualified.
Countries with mixed economies try to use the best parts
of each system.
Different Economic Systems –
Mixed Economies –
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Businesses may still decide what is made, how much
things cost, and how much people are paid.
The government acts to limit harm that might come from
an uncontrolled market economy.
For example, the government might establish a minimum
living wage. (The U.S. has minimum wages set.)
The economy of the U.S. is a mixed economy, but it is
still heavily based on the market system. The
government plays a smaller role in the U.S. mixed
economy.
Different Economic Systems –
Mixed Economies –
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Some decisions regarding production. Such as the
building of roads, schools, and municipal buildings,
are made by federal, state, and local governments.
The use of labor in and outside the armed services
is determined in part by military authorities.
Different Economic Systems –
Mixed Economies –
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Regulated public utilities exist along with
unregulated industries; monopolies stand side by
side with highly competitive firms; giant corporations
compete with small, single proprietorships; the
government regulates some industries and not
others; and government operations occasionally
compete with private industry.
Since we have many types of competition and the
economy contains both free and regulated markets,
it is appropriate to refer to this type of economy as
a mixed economy.
Examples of U.S. Mixed Economy
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A central United States bank.
Many cities provide public transit as competition against
private options, an indirect form of price control.
The United States Postal Service is a public mail service
that exists alongside private options such as FedEx or
UPS.
Most road networks are government built and
maintained, although private citizens and companies
are allowed to "sponsor" a highway or road to ease
some of the financial strain.
Examples of U.S. Mixed Economy
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Public and private schools are available for
children.
Waste collection and treatment are usually
provided as a service by the local government,
though most local governments pay private
companies to perform the service.
Examples of U.S. Mixed Economy
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State and local governments provide guaranteed
police and firefighting support, though private
security forces are available.
Intercity passenger rail (Amtrak) is a nationalized
industry, as are many local trains.
American airports are government operated but all
American airlines are private.
The FDA must test and approve a drug or chemical
before it is allowed to be sold on the market.
Examples of U.S. Mixed Economy
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State and Federal governments have minimum
wage laws, though several occupations are exempt
from the rules, such as wait-staff, who make up most
of their income from tips.
All Americans over the age of 65 are eligible for
Medicare, a public health insurance option.
Most agriculture has been subsidized.
State and local governments provide public utilities
such as water, waste, electricity, and internet access.