Each economy has to answer three specific questions

How it answers these questions determines what kind of economy it is going to be.

The three questions are:What is going to be produced?How are we going to produce it?For whom will it be produced?

There are four types of economies

TRADITIONAL FREE MARKET COMMAND MIXED

A traditional economy is an economy where everyone does the same things their parents did, regardless of what they are good at.

Traditional economies produce everything needed for their own survival, but not much more.

Several characteristics define a free market economy

Private ownership Profit motive Competition Consumer Sovereignty Choice Little government involvement

Centrally planned economy Central control (government

usually) of economic decisions Little consumer choice Cuba, North Korea, China are all

command economies

A combination of Command and Free-market

Individuals and businesses control the “Private Sector”

The government controls the “Public Sector”

There is more government control than a free market, but less than a command

Most modern countries (including the US) have a mixed economy.