This document compares different types of economic systems: traditional, free enterprise (market), command, and mixed. It defines each system and provides examples. A traditional economy relies on customs and focuses on family/tribal production. A market economy uses supply and demand to determine production and pricing. A command economy has the government control production decisions. Most nations today use a mixed system that balances government provision of needs with a marketplace for wants.

1. 2.01 Economic SystemsObjective 2.01 Compare different types of economic systems: traditional, free enterprise, command and mixed.By: Ms. SpringsteenJuly 1, 2009

2. What is Economics?Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources.

3. Factors of ProductionEconomic ResourcesNatural Resources – raw materials found in nature that are used to produce goodsHuman Resources – people’s knowledge, efforts, and skills used in their workCapital Resources – used to produce goods and services (buildings, materials, and equipment)Entrepreneurial Resources - recognize the need for new goods or serviceScarcity – shortage of resources

4. Why Economic Systems?Nations use economic systems to determine how to use their limited resources effectively.Primary goal of an economic system is to provide people with a minimum standard of living, or quality of life.Different types of Economic SystemsTraditional EconomyMarket Economy (free enterprise)Command EconomyMixed Economy

5. Traditional EconomyFound in rural, under-developed countries–VanuatuPygmies of CongoEskimos & Indian tribes BelarusCustoms govern the economic decisions that are made Farming, hunting and gathering are done the same way as the generation beforeEconomic activities are centered around the family or ethnic unit Men and women are given different economic roles and tasks Advantages: people have specific roles; security in the way things are doneDisadvantages: Technology is not used; difficult to improve

6. Market Economy (Free Enterprise)Supply and demand of goods and services determine what is produced and the price that will be charged.Advantage—competition to have the best products and servicesDisadvantage—huge rift between wealthy and poorNote: a true market economy does not exist today because all countries have some government controlAlso called a Free Market Economy or Free Enterprise EconomyBusinesses and consumers decide what they will produce and purchase and in what quantities Decisions are made according to law of supply & demand

7. Command EconomyThe government (or central authority) determines what, how, and for whom goods and services are produced.Two types: Strong Command – where government makes all decisions (communism – North Korea, Cuba) Moderate Command – Socialism, where some form of private enterprise exists but the state owns major resources France and Sweden)AdvantagesGuarantees equal standard of living for everyone (determined by government)Less crime and povertyNeeds are provided for through the governmentDisadvantagesMinimal choicesFewer choices of items No incentive to produce better product or engage in entrepreneurshipAlso known as a Planned or Managed Economy

8. Mixed EconomyCombination of a market and a command economy Government takes of people’s needsMarketplace takes care of people’s wants.Most nations have a mixed economy:United States, England, AustraliaAdvantage—balance of needs and wants met by government and marketplaceDisadvantage—citizens have to pay taxes for government programs