Economic Systems

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Basics about economic systems, including traditional, market, mixed, and command economies.

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Economic Systems

  1. 1. 1. What will be produced? 2. How will they be produced? 3. For whom should they be distributed?
  2. 2. Family / community based system that  relies on custom and ritual to make its  choices. Advantages: Everyone knows what role to  play ‐ v. predictable. Disadvantages: Discourages new ways of  doing things.
  3. 3. How does a traditional economy answer the three fundamental questions? What will be produced: Whatever ritual,  custom, or habitat dictates. How it will be produced: However ritual,  custom, or habitat dictates. For whom it will be distributed: Whomever  ritual, custom, or habitat dictates.
  4. 4. What are some examples? The aborigines The Inuit
  5. 5. Centrally controlled system where the  government makes the decisions. Advantages: Economy can change  rapidly, free health care & social  programs. Disadvantages: System designed to meet  needs not wants, no incentive to work  hard.
  6. 6. How does a command economy answer  the three fundamental questions? What will be produced: Whatever  government decides. How it will be produced: The government  will tell somebody to make it. For whom it will be distributed: Whomever  the government decides needs it.
  7. 7. What are some examples? (There are only  two left!) Cuba North Korea
  8. 8. System that relies on the consumption  choices of individual consumers. Advantages: Maximum choice & freedom,  lots of available goods / services. Disadvantages: Lots of uncertainty,  poverty, and gov’t has to take care of  social needs.
  9. 9. How does a market economy answer  the three fundamental questions? What will be produced: Whatever consumers  (people) demand. How it will be produced: Entrepreneurs  (business people) will respond to demand. For whom it will be distributed: Whomever is  willing to work for it.
  10. 10. What are some examples? USA Italy
  11. 11. System that incorporates government  involvement in a market economy. Examples: France USA England

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