This document discusses different types of economic systems. It describes pure market economies, where production and distribution of goods are determined by supply and demand, and identifies problems like monopoly power and externalities. Pure command economies are described where the government centrally plans production, and problems with inefficiency and lack of choice are identified. Most countries have mixed economies that combine aspects of market and command systems. Traditional economies are influenced by customs while transitional economies are shifting from command to market systems.

1. ECONOMIC
QUESTIONs
ECONOMIC
SYSTEM

2. Identify the three questions all economic system must
answer
Describe a pure market economy and identify its problem
Describe a pure command economy and identfiy its
problem
Compare mixed, market, transitional & traditional
economies
LEARNING
OBJECTIVES

5. PRODUCT RESOURCES
also called factors of production
INPUTS used to produce the goods and services that people want.
productive resources scarce = goods & services scarce
Scarce when it is not
freely available

6. 1.What goods & services
will be produced?
A society (or country) might decide to produce
candy or cars, computers or combat boots. The
goods might be produced by unskilled workers
in privately owned factories or by technical
experts in government-funded laboratories.
Once they are made, the goods might be given
out for free to the poor or sold at high prices
that only the rich can afford. The possibilities
are endless.

7. 2.How should we
produce it?
Resources are all of the ingredients
needed for production, including
physical materials, labor, technology,
and capital.
Scarcity refers to the essential fact that
people’s wants or desires are always
going to be greater than the resources
available to fulfill those wants.

8. 3.For whom should
we produce it?
Scarcity means that resources are limited.
Because of the constraints of scarcity,
then, decisions must be made about
resource allocation (that is, how best to
allocate, or distribute, resources for the
maximum benefit of the society.

10. An economic system
is a system of production
and distribution of
goods and services as
well as allocation of
resources in a society
the action or
process
distributing
something

11. What goods & services
will be produced
How will they
be produced
For whom will
they be produced

12. T Y P E S O F E C O N O M I C
T Y P E S O F E C O N O M I C
T Y P E S O F E C O N O M I C
S Y S T E M S
S Y S T E M S
S Y S T E M S
Market Economy
Mixed Economy
"Hands off" systems,
such as Laissez-faire
capitalism
A hybrid that blends
some aspects of
both market and
planned economy

13. T Y P E S O F E C O N O M I C
T Y P E S O F E C O N O M I C
T Y P E S O F E C O N O M I C
S Y S T E M S
S Y S T E M S
S Y S T E M S
Planned Economy
Mixed Economy
"Hands off" systems,
such as state socialism or
communism, also known as
"command economy"
A generic term
for older economic
systems

14. The Invisible Hands of Markets
Resource owners have property rights to the use of their resources
Resource owners have freedom to supply those resources to the
highest bidder
Producers are free to make and sell whatever they believe will be
profitable
Consumers are free to buy whatever they can afford

15. Market
prices
Resources goods consumer
Market answer the What, How & Whom
transmit information about relative,
scarcity, provide incentives to
producers & consumers
distribute income among resource
suppliers

16. Prices for goods & services are set
freely the forces of supply &
demand and are allowede to
reach their point of equilbirium
without intervention by
governemnt policy
Free- Market Capitalism

17. Adam Smit - Free Market
Philosophical handbook for free market: economies function
most efficiently and fairly when individuals are allowed to pursue
their own interests
Private decisions, made by rational, self-interested individuals,
combine to produce a healthy, growing economy.
Governeent intervention: the great threat to economic growth:
Government intervention distorted the natural and rational
exercise of free.
The "invisible hand" of the market

18. Problem with Pure Markets Economy
Difficulty Enforcing Property Rights
Some People Have Few Resources
Some Firms Try to Monopolize Markets
No Public Goods
Externalities
Economic Fluctuation

19. Command/Planned Economic System
Socialism: social ownership of the means of
production and co-operative management of the
economy
The government controls the economy
The government regulates prices and wages
The state decides how to use and distribute
resources

20. Command/Planned Economic System
all resources are government owned and
government officials coordinate production.
Ownerships of all resources is public or
communal.
Central planners answer the three economic
questions
also called communism

21. The Visible Hands of Central Planners
Do not rely on compeptitive markets but direct in the allocation
of resources and products.
Believe that marketsa economies produce too many consumer
goods & too few capital goods. Ex. military hardware
yields a fairer distribution of goods across households than does
a market economy

22. The Visible Hands of Central Planners
controls all resources including labor
direct production through government-run enterprises, which
usually face no competition.
some goods and services are rationed, meaning that each
household gets a certain amount.

23. Problem with Pure Command Economies
Consumers Get Low Priority
Little Freedom of Choice
Central Planning Can Be Inefficient
Resouces Owned by the Central Authority are
Sometimes Wasted
Environmental Damage
No Role of Entrepreneurs
ideally produces the combination of products that society desires

24. Government
Mixed Economy
Market Economies
Markets Command Economies
An economic system
that mixes central
planning with
cvompetitive markets

26. MIXED ECONOMY
markets play a relatively
large role, it also is
considered a market role
Government accounts for more
than 1/3 of all Philippine economic
activity

27. Income per capita in market-
oriented South Korea 15x
that of North Korea
(centrally planned economy
- dictator)
Taiwan market oriented
after split from China
averages 4x that of China,
command economy
much higher
standard of living

28. North American colonists establish Plymouth Colony
1620. First tried communal ownership of the land.
Turned our badly. Crops were neglected & food
shortages developed. 3yrs. near starvation system
changed. Each Family was assigned its own private plot
of land & keep whatever it grew. Crops yields increased
sharply. They learned that people take better care of
what they grow individually. Common ownership often
leads to common neglect

29. Transitional Economy
Two dozen countries around the world
Shifting from command economies to market
economes
Privitization - converting government-owned
enterprises into private enterprises
Moscow to Beijing Hungary to Mongolia

30. Traditional Economy
Shaped by custom or religion
Ex. Caste System in India restrict occupational choice
Restricts business growth
Your own pattern of consumption and choice of
occupation may be influenced by some of these
forces

36. T R A D I T I O N A L
T R A D I T I O N A L
T R A D I T I O N A L
E C O N O M Y
E C O N O M Y
E C O N O M Y

38. M A R K E T
M A R K E T
M A R K E T
E C O N O M Y
E C O N O M Y
E C O N O M Y

40. C O M M A N D
C O M M A N D
C O M M A N D
E C O N O M Y
E C O N O M Y
E C O N O M Y

42. M A R K E T
M A R K E T
M A R K E T
E C O N O M Y
E C O N O M Y
E C O N O M Y