Chapter 2Chapter 2Economic Systems Economic Systems

and Decision Makingand Decision Making

Chapter 2Chapter 2Economic Systems Economic Systems

and Decision Makingand Decision Making

2-1: Economic Systems

An economic system is an organized way in which society provides for the wants and needs of its people.

1.Traditional economy – Allocations are based on ritual, habit, or

custom.– Individuals generally are not free to make

decisions based on what they want.– Roles are defined by customs.

2. Command economy – A central authority makes all the major economic

decisions.– Individual freedom is limited. Individuals are not

free to make decisions based on what they want.– Private property rights are limited.

3. Market economy – Individuals are free to make decisions in their

own best interest.– Supply, demand, and the price system help

people make economic decisions and allocate resources.

Comparing Economic SystemsRead pages 34 – 39 and complete the table.

• Most economies in the world today are some mix of traditional, command, and market economies.

• Socialism is a political and economic system in which the government owns and controls some factors of production.

• Communism is an extreme form of socialism in which all factors of production are collectively owned and controlled by the state.

• The type of political system in a mixed economy is less important than the way basic economic decisions are made.

• The Spectrum of Mixed Economies