ECON 102.1ECON 102.1TYPES OF ECONOMIC TYPES OF ECONOMIC

SYSTEMSSYSTEMS

OBJECTIVES:OBJECTIVES:1.1. HOW ARE THE 3 BASIC ECONOMIC QUESITONS ANSWERED IN HOW ARE THE 3 BASIC ECONOMIC QUESITONS ANSWERED IN

TRADITIONAL, COMMAND AND MARKET ECONOMIESTRADITIONAL, COMMAND AND MARKET ECONOMIES2.2. WHAT ARE THE ROLES OF SELF-INTEREST AND INCENTIVES IN A WHAT ARE THE ROLES OF SELF-INTEREST AND INCENTIVES IN A

MARKET ECONOMYMARKET ECONOMY3.3. WHAT TYPE OF MIXED ECONOMIES EXIST TODAYWHAT TYPE OF MIXED ECONOMIES EXIST TODAY

ECON 102 IS DEDICATED TO THE MSA PROGRAMECON 102 IS DEDICATED TO THE MSA PROGRAM

ECON 102ECON 102DICTIONARYDICTIONARY

• TRADITIONAL TRADITIONAL ECONOMYECONOMY

• COMMAND COMMAND ECONOMYECONOMY

• MARKET ECONOMYMARKET ECONOMY

• MARKET ECONOMYMARKET ECONOMY

• MARKETMARKET

• INCENTIVEINCENTIVE

• SELF-INTERESTSELF-INTEREST

• MIXED ECONOMYMIXED ECONOMY

• AUTHORITARIAN AUTHORITARIAN SOCIALISMSOCIALISM

• COMMUNISMCOMMUNISM

• CAPITALISMCAPITALISM

• DEMOCRATIC DEMOCRATIC SOCIALISMSOCIALISM

3 BASIC ECONOMIC 3 BASIC ECONOMIC QUESTIONSQUESTIONS

• 1) What to produce1) What to produce

• 2) How to produce2) How to produce

• 3) For whom to produce3) For whom to produce

RESPONSE TO THE 3 RESPONSE TO THE 3

• HOW TO ANSWER THE 3 ECONOMIC QUESTIONS HOW TO ANSWER THE 3 ECONOMIC QUESTIONS IS DETERMINED BY A NATION’S ECONOMIC IS DETERMINED BY A NATION’S ECONOMIC SYSTEM. SYSTEM.

• There are 4 types of economic systemsThere are 4 types of economic systems– TraditionalTraditional– CommandCommand– MarketMarket– MixedMixed

But in reality all economies are mixed, there are no pure But in reality all economies are mixed, there are no pure economies today.economies today.

TRADITIONAL ECONOMYTRADITIONAL ECONOMY

• To answer the 3 basic economic To answer the 3 basic economic questions, these societies look to the questions, these societies look to the past.past.

• Contemporary economic activities Contemporary economic activities are based on the collection of rituals, are based on the collection of rituals, habits, laws, and religious beliefs habits, laws, and religious beliefs developed by the group’s ancestors.developed by the group’s ancestors.

COMMAND ECONOMYCOMMAND ECONOMY

• To answer the 3 basic economic questions, these To answer the 3 basic economic questions, these societies look towards government officials (central societies look towards government officials (central planners) for answers.planners) for answers.

• They have the power to decide what products will They have the power to decide what products will be made and how these products are produced.be made and how these products are produced.

• Individual have little to no say in this economy.Individual have little to no say in this economy.

• Pure command does no longer exists, but in the Pure command does no longer exists, but in the past they had, Middle Ages, Zhou Dynasty, ancient past they had, Middle Ages, Zhou Dynasty, ancient EgyptEgypt

MARKET ECONOMYMARKET ECONOMY

• To answer the 3 basic questions, this To answer the 3 basic questions, this economy looks to the individual for economy looks to the individual for answers. answers.

• People can buy, sell, and produce anything People can buy, sell, and produce anything they want.they want.

• The free exchange of goods and services is The free exchange of goods and services is referred to as the market. referred to as the market.

Market as a regulatorMarket as a regulator

• Adam SmithAdam Smith first person to explain market first person to explain market regulationregulation

• He contended that when the government is not He contended that when the government is not involved in the economy, the market is driven by involved in the economy, the market is driven by self-interest----the impulse that encourages people self-interest----the impulse that encourages people to fulfill their needs and wants.to fulfill their needs and wants.

• The choices we make benefit society as well as us.The choices we make benefit society as well as us.

• Incentives help motivate people to work harder.Incentives help motivate people to work harder.

MIXED ECONOMIESMIXED ECONOMIES

• THIS ONE IS OBVIOUSTHIS ONE IS OBVIOUS

THREE MAIN CATEGORIESTHREE MAIN CATEGORIES

1)1) Authoritarian SocialismAuthoritarian Socialism

2)2) CapitalismCapitalism

3)3) Democratic SocialismDemocratic Socialism

Authoritarian SocialismAuthoritarian Socialism

• Also called CommunismAlso called Communism

• Closest to pure command modelClosest to pure command model

• Government controls nearly all Government controls nearly all factors of production.factors of production.

CapitalismCapitalism

• U.S.A.U.S.A.

• Closet to the market modelCloset to the market model

• Individuals answer all the economic Individuals answer all the economic questionsquestions

• Governments may enact regulations, Governments may enact regulations, but in a limited fashionbut in a limited fashion

• Examples???????????????Examples???????????????

Democratic SocialismDemocratic Socialism

• Government owns some of the factors of Government owns some of the factors of productionproduction

• Usually limited to key industries of Usually limited to key industries of national concernnational concern

• Individuals are able to influence the Individuals are able to influence the economic planning through the election of economic planning through the election of government officialsgovernment officials