Economic Systems

The way a group of people produce and distribute

goods and services.

4 Types of Economic Systems

1. Command2. Traditional3. Market4. Mixed

Traditional EconomyDefinition

When people grow or make their own goods

Characteristics

• Found in developing countries

• Use of Barter System (Trade goods for goods)• Production & Distribution of goods/services is based on

customs and traditions of society.

• Based on how things were done in the past.

ExamplesFound in remote Rural areas (Congo/Amish)Found in many developing countries

Command ECONOMY• Definition:

• Gov’t makes all economic decisions and controls everything

• Characteristics:

• No competition

• Government determines• For Whom, how and what products will be

made

• Prices of products• People are not free to choose what to buy or

sell

• Examples:Communism – economic system in

which the central government directs all major economic decisions.

Socialism – Government has some controls over basic means of production the rest are privately owned and operated.

Command ECONOMY Con’t

• Role of GovernmentMake all decisions about what is

produced and who gets it

Command ECONOMY Con’t

Market ECONOMY

• Definition:

• People are free to obtain goods and services in any way they want

• Characteristics:• Competition exists

• NO Government Interference (Laissez-Faire)

• Consumers are NOT protected by unfair business practices such as

monopolies.

• Goods are produced to meet public demand (supply & demand).

• Private businesses produce goods for profit

• Examples:Capitalism– Economic decisions for

production are made by people and are based on profit motive.

No current nation has a true market economy

Market ECONOMY Con’t

• Role of GovernmentIn a true market economy, Government

has very little or no involvement; it does not regulate business, nor does it protect consumers

Market ECONOMY Con’t

Mixed ECONOMY• Definition:

• Relies on a combination of all the other three economic systems

• Characteristics:

• People CHOOSE what they buy and sell.

• Competition is encouraged.

• Government regulates business to protect consumers• Supply & demand dictate what are produced

• Sellers motivated by profit

MIXED Economy Con’t

Examples:

CapitalismUnited States

Most of the countries in the world have some sort of mixed economy

MIXED Economy Con’t

Role of Government

In a mixed economy, Government sets up regulations in order to protect consumers (break up monopolies; establish minimum wage; create laws to limit pollution, etc…)