The document discusses economic systems and the basic economic questions of what to produce, how to produce, and for whom to produce. There are four main types of economic systems - traditional, command, market, and mixed - that answer these questions in different ways. Most economies today are mixed, combining elements of traditional, command, and market systems. The US and other nations also have economic goals that sometimes conflict, such as efficiency, equity, and growth, requiring policymakers to prioritize which goals to focus on first.

1. Economics, Ch. 2
Economic systems
2.1, 2.2, 2.3
1

2. • What to produce
• How to produce
• For whom to produce.
• A nations responses are determined by its economic
system, which reflects the process a nation follows to
produce goods and services.
Review: What are the three
basic economic questions? 2

3. • Traditional, command, market and mixed.
• All economies today are mixed, a pure economy doesn’t
exist
• Mixed economies that are closest to the pure command
model are classified as command economies. Same with
other types of economies.
What are the four types of
economic systems? 3

4. • Based on a societies values, customs and traditions.
• Tradition decides what you produce. If your family has
always caught fish, your family will most likely always
catch fish. Roles are usually passed down from father to
son and mother to daughter.
• Traditional economies still exist in parts of N. America,
Asia, Africa, San of the Kalahari Desert and the
Aborigines of Australia.
Traditional Economy 4

5. • They are found in the past. Contemporary economic
activities are based on the collection of rituals, habits,
laws and religious beliefs developed by the groups
ancestors.
• For whom? The entire group or tribe
How are the three basic economic
questions answered in traditional
economies? 5.1

6. • The government has complete control over production.
• Also called planned economies
• Individuals in a command economy have little or no say
in economic choices.
• Command economies were popular in the past. Egypt
(2700-2200 b.c.), China (1122-221 b.c.), western europe
in the middle ages.
Command Economy 6

7. • Relies on government officials to answer the three basic
economic questions.
• Officials, or central planners, have the power to decide
what products will be produced and how.
• They also decide who will receive the products.
How are the three basic economic
questions answered in command
economies? 7

8. • People can buy, sell and produce anything.
• Market – free exchange of goods and services.
• Ex. US, Germany, and Japan
Market economy 8

9. • Individuals answer the three basic questions.
• For whom? Everyone
• How? Anyway
• What? anything
How are the three economic
questions answered in market
economies? 9

10. • Self-interest benefits all of society by helping the
economy grow.
• In a market exchange, each person attempts to gain the
greatest possible advantage.
• Self-interests serve as an “invisible hand” that leads them
to do what is best for society.
• Incentive – something that encourages you to act in a
certain way.
• Examples of incentives include commercials, billboards,
ads, etc..
What are the roles of self-interest
and incentives in a market
economy? 2.1

11. • Authoritarian socialism – (communism) the government
controls nearly all the factors of production which in turn
limits the decision making power of individuals. Ex. Cuba
• Capitalism – individuals own the factors of production and
answer the basic economic questions. Ex. US, Canada,
Mexico, Japan and Taiwan. The governments involvement in
the economy is limited.
• Democratic socialism – the government owns only some of the
factors of production like phone and electrical utilities. Ex.
Sweden, Poland, France, Tanzania, Angola, and Mozambique.
What types of mixed
economies exist today? 2.1

12. • Individuals have the right to:
• Own private property
• Make individual choices,
• Engage in economic competition
• Make decisions based on self-interest and
• Have limited government interference when participating in
the economy (laissez-faire)
What are the basic principals
of free enterprise in the US? 2.2

13. • Product market: all of the exchanges of goods and
services in the economy
• Resource market: exchange between the resources
between those who use them.
What are the 2 markets in
the circular flow model? 2.2

14. • Its shows the exchanges between the flow of resources
and the flow of payments.
How does the circular flow
model reflect exchange? 2.2

15. • They set goals. A nation’s policymaker makes choices on
how to use scarce resources depending on the goals that
are set.
How do nations decide how
to use scarce resources? 2.3

16. • The US economic goals are freedom, efficiency, equity, security,
stability, and growth.
• Economic freedom: maintaining freedom of choice in the
marketplace.
• Economic efficiency: efforts to make the best use of scarce resources.
• Economic equity: (economic justice) fairness of choices in economy
• Economic security: protection from poverty, medical emergencies
and other things that could put someone’s economic well-being in
danger.
• Economic stability: full employment and stable prices.
• Economic growth: increase the amount of goods and services put out
by each worker in the economy.
What are the major goals of
the US economic policy? 2.3

17. • People’s needs and wants may conflict, priorities can
conflict, solutions can conflict and priorities can change.
• To fix this, the nation will depict what economic goals are
more important, then assign which goal they will plan to
meet first.
Why do economic goals
sometimes conflict? 2.3