Economic Systems

Mr. OdrenEconomicsEconomic SystemsWhat is an Economic System?The structure by which a nation uses its resources to satisfy the wants and needs of its peopleHow does a nation satisfy wants and needs?By answering three basic questions.1. What to produce?2. How to produce it?3. For whom will it be produced?Nations answer these questions differently, creating 3 different types of economies:1. Traditional2. Market (free-enterprise)3. CommandTraditional EconomiesBased on tradition, culture, custom, and religionRarest type of economy in use todaySome traditional economies still thrive in small communities throughout Asia, the Middle East, and Africa.

Market EconomyIndividuals own the Four Factors of Production.1. Land2. Labor3. Capital4. Entrepreneurial AbilityIndividuals answer the 3 basic economic questionsGovernment has little involvement in the economy..a.k.a. Laissez-Faire (Let it be)Market system contSince individuals control what to produce, how to produce, and for whom to produce, they have more motivation to do well for themselves.This is known as having Self-InterestIf everyone tries to do whats best for themselves, then everyone is contributing to the overall economy

This concept was proposed by Adam Smith, and is known as The Invisible Hand TheoryEveryone working for their own self-interest pushes (like a hand) the economy to grow.Examples of Market Economies Today:U.S.A. Japan, Germany, Canada, England, MexicoCommand EconomyThe individual has little or no influence in the economyThe government answers the 3 basic economic questions for you.The government controls the economyIt sets prices, distributes resources, and controls the factors of productionThe government decides what to make, who gets what, and how to make it..

Examples of Command EconomiesCuba, Vietnam, North KoreaMixed EconomyNow considered a 4th Economic SystemMarket + Command = MixedTo some degree, all modern economies exhibit characteristics of both systems and are often referred to as mixed economies. Most economies are closer to one type of economic system than anotherBusinesses own most resources and determine what and how to produce, but the government regulates certain industries

Questions1. Which type of economic system do you think would best satisfy the wants and needs of a nation? Why?2. Why are traditional economies unpopular as economic systems?3. Which type of economic system seems the most fair? Why?