Types of Economic Systems

Economic Questions, Freedoms, & Social Goals

Lived in Scotland from 1723-1790

Wrote The Wealth of Nations

Believed in Laissez Faire Economics

The government should not control the economy

It will natural work itself Profit Incentive:

Business will produce what they know people need and want so that they can make a profit

Adam Smith

Hands OFF!!!!!!

Father of CapitalismOr Modern Economics

4 Economic Questions:Who should produce

what?What and how much should be produced?

Choice of career/job Which business? Example: Farmer Fred or

Framer Sally? We don’t know They decide

Because of scarcity and tradeoffs if you produce more of one thing you will have to produce less of another

Wheat or tomatoes? 10 acres of wheat and 5

acres of tomatoes? We don’t know They decide

OR OR

4 Economic Questions:How should goods and services be produced?

Who should share in what is produced?

Decide by what will cost the least but give the best outcome

Hire workers? Buy a tractor?

Tractor may be more expensive at first but will produce more faster

Maybe the better choice

How the goods and services are distributed in society

Who gets the goods and services? Who profits?

The farmers (profit), the consumers (get goods), the workers (pay)

OR

How income is distributed or shared among a nation’s population

Who gets what or who has what

Distribution of Income

The type of economic system you live in

determines the answers to these

questions!!!

Types of Economic Systems

Types of Economic Systems

Traditional Market

Things are the way they have always been

Based on traditions, beliefs, customs, or religion

If dad was a farmer you will be a framer

Where? Native American or African tribes

Capitalist Individual owns and controls the

factors of production No government interference More individual economic

freedoms Individual answers the economic

questions

Market: the activity that happens between buyers and sellers

Buyers agree to purchase a good or service and sellers agree to sell it at a certain price

Types of Economic Systems

Command Mixed

Controlled Government controls the

factors of production There are little to no personal

economic freedoms Government controls what is

produced and who produces it-It answers the economic questions

The economy has characteristics of two or more of the types of systems

Example: U.S. is mixed Market: Freedom to own

business Command: There are laws

like labor laws, minimum wage, etc. so some government control

Characteristics of a Market Economy

Six Economic Freedoms in the American Economy

You choose how to spend your money and what to buy

Buyers control what is produced

A business chooses what they sell according to what the buyer needs and wants

We have a great deal of variety

Freedom of Choice/Freedom to Buy & Sell

Sellers rival to sell similar products at lowest cost or best quality

Free Competition: system in which businesses compete for customers

Compete with price and quality

Freedom to Compete

You choose your career

You can find a better job for better pay

You can ask for better pay or benefits

You can get an education of your choice

Freedom to Earn a Living

Profit: money left after you pay for all costs of producing the goods and services

Example:

Profit Incentive: Desire to make a profit so will produce what consumers want and need

Invest: put money into a business

Freedom to Earn a Profit

Copyright: License to written work (films, music, books)

Patent: license to produce an invention for a period of time

Private Property: owned by individual or group, not the government

But government can have its own private property

You have the right to own land, a business, home, forms of capital, etc.

Freedom to Own Property

Freedom to own and run a business the way you want

Freedom to own and control the factors of production

Free Enterprise System: system in which there are few limits to business ownership or activities

Freedom of Enterprise

In the U.S. the role of government is limited

Except in times of national security, to keep peace, or emergency

Over time the role has increased

Examples:

Role of Government:Regulate Prices

Labor Laws