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Econ Ch2 Economic Systems
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Econ Ch2 Economic Systems

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  • 1. Chapter Economic Systems 2
  • 2. Chapter Objectives
    • Students will learn:
    • The basic questions that any economic system must answer.
    • The basic varieties of economic systems.
    • How the 3 basic types of economic systems differ in their answers to the fundamental economic questions.
    • How the theoretical models of economic systems actually work in the real world.
  • 3. Economic Systems
    • What is an economic system ?
    • System=order, structure, rules
    • Economic=factors of production, resources
    • Economic system =the way a country decides to use its resources
  • 4. The Basic Economic Questions
    • What to produce
      • ALLOCATION OF RESOURCES
    • How to produce
      • PRODUCTION & EFFICIENCY
    • For whom to produce
      • WHO GETS WHAT? WHY?
  • 5. Kinds of Economic Systems
    • Traditional
    • Command
    • Market
  • 6. Traditional Economies
      • Based on previous generations
      • Stable
      • No incentives
      • No changes / no freedom
      • Very rare, doesn’t exist in very many places
  • 7. Command Economies
      • Central authority makes decisions
      • Government owns or controls factors of production
      • No freedom
      • Controls distribution
      • National planners
      • Quick in emergencies
      • Examples?
  • 8. Market Economies
      • Free market/laissez-faire
      • Invisible hand/Adam Smith
      • Self-interest
      • Workers exchange labor for wages
      • Use income to buy goods & services
      • Decisions based on prices
      • Efficient approach
      • Poor are at a disadvantage
  • 9. Comparing Command & Market
  • 10. Economic Systems in the Real World All economies are mixed.
  • 11. Changing Economies
    • More and more, countries are turning to capitalism and free markets
    • Transitional economies =
      • Command Market
      • Creates new markets, new ideas, and new relationships
      • Examples?

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