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Economic Systems!Coach Burnett!

Why do we have Economic Systems?!

!   Survival for any society depends on its ability to provide food, clothing, and shelter for its people.!

!   The Economic System is the organized way a society provides for the wants and needs of its people.!

Three Economic Systems!

!   Traditional Economy!

!   Command Economy!

!   Market Economy!

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Traditional Economy!

!   Economic activity is based on ritual, habit, and custom!

Strengths of Traditional Economies!

!   Everyone knows their role!

!   Little uncertainty about what to produce!

!   The question of ‘For Whom’ to produce is answered by custom!

!   Life is generally stable, predictable, and continuous!

Weaknesses of Traditional Economies!

!   Tends to discourage new ideas!

!   Lack of progress leads to lower standard of living!

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Command Economy!

!   Central Authority makes most economic decisions!

!   Economic decisions are made at the top and the people are expected to go along with the choices their leaders make!

Strengths of Command Economies!

!   Change direction in a relatively short period of time (The U.S.S.R. went from being primarily an agrarian society to an industrial nation rather quickly)!

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Weaknesses of Command Economies!

!   Not designed to meet the wants and needs of individuals!

!   Lack of incentives to work hard leads to unexpected results!

!   Large bureaucracy for economic planning!

!   Not flexible in dealing with minor day to day problems!

!   People with new or unique ideas are stifled!

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Market Economy!

!   People and firms act in their own best interest in order to answer economic questions!

Market Economy!

!   Markets allow buyers and sellers to come together in order to exchange goods and services!

Strengths of Market Economies!

!   Markets can adjust over time!

!   Freedom exists for everyone involved!

!   Relatively small degree of governmental influence!

!   Decision making is decentralized!

!   Variety of goods and services are produced!

!   High degree of consumer satisfaction!

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Weaknesses of Market Economies!

!   The primary weakness is deciding ‘For Whom’ to produce!

!   The young, sick, and old would have difficulty in a pure market environment!

!   Markets sometimes fail!

!   Competition (monopolies may develop)!

!   Resource mobility (resources are sometimes hindered from moving about)!

!   Availability of information (producers often have more information than do consumers, which gives them an advantage)!

Mixed Economies!

• A mixed economy is an economy that includes a variety of private and government control usually a mixture between socialism and capitalism.!

• All economies are a form of mixed economy but we usually categorize based on which economy they are closer to.!

Capitalism!

Capitalism is an economic system in which trade, industry, and the means of production

are controlled by private owners with the goal of making profits.!

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Socialism!

Socialism is an economic system in which the means of production are socially owned and used to meet human needs, not to create

profits.!

Communism!The economic system of communism puts all planning of the economy in the hands of the

government. A communist society distributes ownership of property evenly among every member!

Communism vs. Command"!•  You can have a command economy without

communism but you cannot have communism without a command economy.!

•  Communism is a system of government and command is a type of economy – DON’T confuse the two… Command is the larger umbrella under which Communism falls.!