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Economic systems

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    Economic systems Economic systems Presentation Transcript

    • Economic Systems UNIT FIVE NOTES
    • Economic Systems
      • When deciding how to use its limited resources, every country answers 3 questions about production and distribution
          • What will be produced?
          • How will it be produced?
          • For whom will it be produced?
      • How a country answers these questions depends on the type of economic system they have
    • Four Types of Economic Systems:
      • 1. Traditional Economy
      • 2. Command Economy
      • 3. Market Economy
      • 4. Mixed Economy
    • Traditional Economy
      • An economic system in which production and distribution questions are answered by looking to the past
      • People will make what they always made; will do the same work their parents did
      • Economic decisions are made by customs and beliefs
      • Example: Inuit; some parts of Africa and South America
    • Command System
      • An economic system in which production and distribution questions are answered by central planners (government)
      • Example: North Korea, former Soviet Union, Cuba, *most Communist countries
      • --Germany and Russia have moved away from having a Command economy since 1991. Now they have a Mixed economy.
      • Economic decisions are made by the government
    • Command System (Cont.)
      • Planners estimate what goods will be needed in the future and work backward to decide what materials and workers are needed now
      • Planners can be wrong about future needs, and they do not provide people with many choices
      • Example: Farming--the government decided who would be farmers, what they would grow, and how much would be turned over to the government
    • Market Economy
      • An economic system in which production and distribution questions are answered by prices and profits
      • Economic decisions are based on Free Enterprise
      • Most Democratic countries have a variation of a Market economy & a Command economy (Mixed economy)
        • There are no truly pure Market economies, but the US and the United Kingdom are close
    • Market Economy (Cont.)
      • Businesses will make these products and provide those services to earn a profit
        • Services—in economics, work done for others; hotels, restaurants, and doctors all provide services
      • Businesses will make things using whatever materials, labor, and technology earn the highest profit
      • Standard of living is higher under a market system than the others as it often has rapid technological change
    • Market Economy (Cont.)
      • The price of a good depends on how much of the good is available and how many people want it
      • Producers turn resources into goods and services
      • Resources are raw materials, such as oil, people’s labor, machinery, and minerals
      • Governments can also be producers when they provide goods such as roads and schools, or when they provide services such as military production or health care
    • Market Economy (Cont.)
      • Consumers, or buyers, purchase goods and services
        • Consumer—a buyer and user of goods and services
      • Producers and consumers come together to exchange goods and services
      • Exchange is giving up one thing in return for another
        • In a traditional economy, exchange is most likely to be in the form of barter
    • Mixed Economy
      • Individuals own most resources and determine what and how to produce
      • Government regulates certain industries
      • Example: China; most nations
      • Market + Command = Mixed