Economic Systems

Economic System vs. Form of Government

A. Economic System: The way goods and services are produced and distributed in a country.

B. Form of Government: The way a country makes, enforces, and interprets laws.

Key Terms/Ideas

A. Consumer: an individual who uses goods and services in an economy.

B. Private Property: any material possessions that individuals own

C. Freedom of Enterprise: the right of a business or individual to make economic choices. Fuels competition and provides consumers with options.

D. Role of Government: how involved is the government in the economy

Traditional EconomyA. An economic system in which

decisions on production and consumption are based on customs, beliefs, rituals, and habits. People do things they way they always have.

B. A traditional economic system is likely to be found in countries that are not as developed as a place like the United States.

C. A good example would be a Native American tribal economy.

Market EconomyA. An economic system in which

decisions on production and consumption are made by individuals acting as buyers and sellers.

B. Capitalism and free-enterprise are terms that also refer to market economies.

C. Individuals are allowed free enterprise, the opportunity to make their own economic choices including taking risks to make profits.

D. The U.S. economy is based on a market or capitalist system.

Command EconomyA. An economic system in which all

decisions on production and consumption are made by a central government.

B. The economic systems of most communist nations are command economies, because the government makes all economic decisions.

C. The best example of a command economy and communism is the former Soviet Union.

D. The U.S. economy during WWII is also an example.

Mixed EconomyA. An economic system that

combines features of the command and market systems.

B. Democratic socialism is an example of a mixed economy. A democratic socialist system has characteristics of both market and command systems.

C. Most countries of the world fall into the mixed category.

Journal: Economic Systems Notes

• Which forms of government would match up best with a market economy? Why?

• Which forms of government would match up best with a command economy? Why?

Economic Systems and Forms of Government Compatibility

A. Certain governments match up well with certain economic systems.

B. Democratic governments often have a market based system. They fit well together because they both allow a lot of freedom for the people.

C. Authoritarian governments, like dictatorships, often fit well with a command based system, because they both rely on government control.