1. Economic Systems
Types ofEconomic Systems
"You can't alwaysgetwhat youwant."That's what the RollingStonessang,anyway(checkitout:great
songevenif it'sa bitbefore yourtime).Andwhile MickJaggerprobablydidn'thave Econ101 inmind,
he managedto sum upperfectlythe core conceptunderlyingall economics.
Scarcity isthe fundamental challengeconfrontingall individualsandnations.We all face limitations...so
we all have to make choices.We can't alwaysgetwhatwe want.How we deal withthese limitations—
that is,howwe prioritize andallocate ourlimitedincome,time,andresources—isthe basiceconomic
challenge thathasconfrontedindividualsandnationsthroughouthistory.
But not everynationhasaddressedthischallengeinthe same way.Societieshave developeddifferent
broad economicapproachestomanage theirresources.Economistsgenerallyrecognizefourbasictypes
of economicsystems—traditional,command,market,and mixed—buttheydon’tcompletelyagree on
the questionof whichsystembestaddressesthe challenge of scarcity.
A traditional economic systemis—here'sashocker—shapedbytradition.The workthatpeople do,the
goodsand servicestheyprovide,howtheyuse andexchange resources…all tendtofollow long-
establishedpatterns.Theseeconomicsystemsare notverydynamic—thingsdon’tchange verymuch.
Standardsof livingare static;individualsdon’tenjoymuchfinancial oroccupational mobility.But
economicbehaviorsandrelationshipsare predictable.Youknow whatyouare supposedtodo,whoyou
trade with,and whatto expectfromothers.
In manytraditional economies,communityintereststake precedenceoverthe individual.Individuals
may be expectedtocombine theireffortsandshare equallyinthe proceedsof theirlabor.Inother
traditional economies,some sortof private propertyisrespected,butitisrestrainedbya strongsetof
obligationsthatindividualsowe totheircommunity.
Today youcan findtraditional economicsystemsatworkamongAustralian aboriginesandsome
isolatedtribesinthe Amazon.Inthe past,theycouldbe foundeverywhere—inthe feudal agrarian
villagesof medievalEurope,forexample.
In a command economicsystem or plannedeconomy,the governmentcontrolsthe economy.The state
decideshowtouse and distribute resources.The governmentregulatespricesandwages;itmayeven
determine whatsortsof workindividualsdo. Socialismisatype of command economicsystem.
Historically,the governmenthasassumedvaryingdegreesof control overthe economyinsocialist
countries.Insome,onlymajorindustrieshave beensubjectedtogovernmentmanagement;inothers,
the governmenthasexercisedfarmore extensivecontrol overthe economy.
The classic(failed) example of acommandeconomywasthe communistSovietUnion.The collapse of
the communistblocinthe late 1980s ledto the demise of manycommandeconomiesaroundthe world;
Cuba continuestoholdonto itsplannedeconomyeventoday.

2. In market economies,economicdecisionsare made byindividuals.The unfetteredinteractionof
individualsandcompaniesinthe marketplace determineshow resourcesare allocatedandgoodsare
distributed.Individualschoose howtoinvesttheirpersonal resources—whattrainingtopursue,what
jobsto take,whatgoodsor servicestoproduce.Andindividualsdecide whattoconsume.Withina pure
market economy the governmentisentirelyabsentfromeconomicaffairs.
The UnitedStatesin the late nineteenthcentury,atthe heightof the lassez-faire era, wasaboutas close
as we've seentoa pure marketeconomyinmodernpractice.
A mixedeconomicsystemcombineselementsof the marketandcommandeconomy.Manyeconomic
decisionsare made inthe marketbyindividuals.Butthe governmentalsoplaysarole inthe allocation
and distributionof resources.
The UnitedStatestoday,like mostadvancednations,isamixedeconomy.The eternal questionfor
mixedeconomiesisjustwhatthe rightmix betweenthe publicandprivate sectorsof the economy
shouldbe.
WhyIt Matters Today
Half of the twentiethcenturywentdownasa global battle betweendefendersof free markets
(democraticcapitalistnations,ledbythe UnitedStates) andbelieversincommandeconomies(the
communistbloc,ledbythe SovietUnion).
The US and USSR neverwenttowar againsteach otherdirectly,butdozensof smaller(yetstilltragic
and significant)warsunfoldedaroundthe worldasbitterfightsovereconomicsystemsturnedbloody.
Korea,Vietnam,Nicaragua,Afghanistan,Angola…millionsof peoplediedinthe various"hot"theatersof
a ColdWar foughtto decide whethermarketsorstatesshouldcontrol economicaffairs.
The great ironywas thatthe ColdWar finallyendednotona battlefield,butbecause the Soviet
economyfinallyself-destructedbythe late 1980s. For most of the world,the Sovietcollapse provedthat
commandeconomieswere simplyinferiortothe market-dominatedmixedeconomiesof the capitalist
world.Of course,China– still ruledpoliticallybyanauthoritarianCommunistParty,eventhoughits
economyisnowmore mixedif notexactlyfree –is now the biggestcreditornationtothe UnitedStates.
PART I Answer:
1) Whatis the basiceconomicchallenge thatindividualsand nationsface?
2) List the fourtypesof economicsystems.
3) Briefly describe a traditionaleconomicsystem.Give an exampleof where thistype of systemis
used.

3. 4) Briefly describe a command economicsystem.Givean exampleof wherethis type of systemis
used.
5) Briefly describe a marketeconomicsystem.Give an exampleof where this typeof systemis used.
6) Briefly describe a mixed economicsystem.Give an exampleof where this typeof systemis used.
7) Whatwasthe “Cold War” about?
8) Howdid the Cold War end?
PART II: Video:Accessthe link below in orderto view the shortvideo.
http://bit.ly/qwkq0L
Submit2 newthingsyou learned aboutthefoureconomic systemsfromthisvideo.