III. Economic Systems

III. Economic Systems
•Every single society has an economic system.
• The purpose of an economic system is to make
and distribute goods and services.
• The roles of individuals, businesses, and
government vary in each system.
• There are four basic economic systems:
Traditional, Market, Command, and Mixed
Traditional Economies
•An economy where people make economic
decisions based on their customs and habits.
• needs and wants are usually established through
hunting and farming.
• This is usually the traditions of their ancestors
• Culture is seen as more important than having a
strong economy
•People in traditional economies usually do not
want to change their basic way of life.
• In today’s world, traditional economies are not
Market Economies
•An economy in which individual consumers and
producers make economic decisions
• This type of economy is also called capitalism,
or free market.
• Encourages people to start new businesses by
giving them economic freedom
Command Economies
•In this form of government, the central
government makes all economic decisions
• also called a centrally planned economy
• little or no economic freedoms for individuals
• producers and consumers make very few
basic economic decisions
Mixed Economy
•In reality pure market or command economies
do not exist
• most societies have mixed economies –
different levels of government control
• combines different elements of traditional,
market, and command economic systems
•The United States has about
the closest thing to a pure
market economy
• However, it is still considered a
mixed economy because of
minor government regulations
• For example, the government
passes laws to protect the rights
of consumers
• The government also
influences economic growth
through jobs and services
•Countries like North Korea have as close to a
pure command economy as you can get, but
are still considered mixed.
• The government controls almost all economic