Economic Systems Problems All Economies Face Scarcity forces all countries to answer these 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 [...]...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... 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... 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... 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... 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... 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 •