Chapter 2 Economic Systems
- The way a country decides to use its resources to satisfy its peoples wants and needs
Countries, like us have limited resources, so they must decide . . .
- 1. WHAT should be produced?
- 2. HOW should it be produced?
- 3. For WHOM should it be produced ?
- The way a country answers these three questions will determine the type of economic system that country will have.
Types of Economic Systems TRADITIONAL MARKET COMMAND MIXED
- Know what you are going to do
- Gov’t leaders control factors of production – make all decisions.
- (One person, a small group, or a group of central planners make decisions)
- Gov’t decides pay and where you will work
- Gov’t decides how goods & services will be distributed.
- Economic decisions are made by the government
- Opposite of Command economy
- Decisions made by individuals not gov’t
- Property owned by individuals
American Free-Enterprise system (Capitalism)
- Remember – easy to start a business in a free enterprise system
Free – Enterprise Promotes. . .
- Profit – amount earned after cost to produce the product
- Competition – rivalry among producers and sellers to win business
- Private-Property – property owned by individuals.
- High Standard of Living – the material well being of an individual, group or nation
- Economic Equity attempt to balance economic policy so that it is just – and everyone benefits fairly
- Combination of market and command economy
- Most countries have a mixed economy
- You can own your own property
- Most decisions are made by individuals with only a small amount of gov’t input.
Economist – Adam Smith
- Father of the “Invisible Hand” theroy??
- believed . . . Gov’t should not interfere in the marketplace . . . Which is Capitalism – which is another name for the ________ economy
- Also know as laissiz-faire – where gov’t minimizes its interference in the economy.
Economist Karl Marx
- Capitalism would die out and pure communism (command) would replace it