ECONOMIC SYSTEMS…What kind do you live in?

Economic systems

Systems that answer the three basic economic questions of what, how, and for whom

Incentives: An incentive is what motivates people. Ex. A dog gets a treat to pee outside. The

treat is the incentive. It motivates the dog to pee outside. The dog has a reason to pee outside.

An incentive encourages you!

Basic systemsThey do not exists anymore

Traditional System A native American tribe is an example Custom and tradition answer the 3 Q a current day example: a recipe passed down

from your grandmother to your mom and now to you

Basic Economic systemsDo not exists anymore

Command System (Pure Centrally Planned) Feudal system is a past example…..Kings,

lords, serfs The “government” answers the three

questions. The people do not have a say The problem is that the people have no

incentives.

Basic Economic systemsNo longer present today

Pure Market System A market systems has NO government

involvement in the market The people answer the three basic questions The incentive to work hard is to make more

money….maybe even be rich! Adam Smith wrote about how wonderful the

market system is in the “Wealth of Nations”. He says the incentives it provides motives people and the invisible hand guides the market.

Mixed Systems: Modern day

Mixed systems provide elements of different Economic systems mixed together.

These types of systems are the systems we see in the world today.

All economies in the world today are mixed.

They are: Communism, Socialism, and Capitalism

Communism

Mostly Command with a touch of market. The three questions are answered by the

Government. The government controls where you can live,

what you will do for work, and how much money you will make.

You are taxed at a very high rate Government provides public healthcare, ed,

and retirement No incentives are present in this system. Ex. Cuba

Socialism

Created at the end of WWII. It is a 50/50 mix of Communism and Capitalism

The three basic Econ Q are answered by the people and the government together.

It does provide incentives, but not as many as Capitalism

It does provide Public services like healthcare, ed, and retirement. Private options available for an extra cost.

Taxed at a rate of about 50%. Ex. France

Capitalism

US is an example It is mostly market b/c the government has a

limited role in the economy There are many incentives to work hard The people answer the three basic Econ Q The system is considered mixed b/c the

government is present, not making it 100% market.

The people must provide their own health care, education after HS, and retirement.

Taxed at a rate of about 30%

Goals of Capitalism

In the US, Capitalism is also called “Free Enterprise”

Goals: Economic Freedom Economic Equity Economic stability (with prices and jobs) Economic Growth (standard of living) Economic Security Economic efficiency

Transitional Economy

Moving from one type of Economic system to another. It is a long process and cannot happen over night.