Types of Economic Systems

Types of Economies

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Open Ended

What did Adam Smith believe?

Open Ended

What did David Ricardo contribute in Economics ?

Open Ended

What did Thomas Malthus contribute to the field of Economics?

Open Ended

What is a profit in business?

Open Ended

What is an economy?

Review! What is an economy?

An economy, or economic system, is the way a nation makes economic choices about how the nation will use its resources to produce and distribute goods and services.

Four Factors of Production

Remember we talked about resources? We discussed about human resources, natural resources, and capital resources. They are called factors of production. The last factor of production is entrepreneurship.

Multiple Choice

What is entrepreneurship?

• a person who works for a corporation

• those that manage and/or invest in a business

Multiple Choice

What is scarcity?

• having limited resources (there is a small amount available and will run out)

• having unlimited resources (there a lot of the resource available and won't run out)

Review! What are the questions that every economy, business, and individuals must answer?

WHAT goods and services should be produced?

HOW should the goods and services be produced?

WHO receives and consumes these goods and services.

Four Types of Economic Systems

These questions are answered by the type of economic system a nation has. There are four types of economies:

1.Traditional Economy

2.Pure Market Economy

3.Pure Command Economy

4.Mixed Economy

Let’s review each of these types of economies.

Traditional Economy

Economy is shaped largely by custom or religion. 

Customs and religion determine the WHO, WHAT, and HOW.

Example: India has a caste system which  restricts occupational choice. (A social class separated from others by distinctions of hereditary rank, profession, or wealth.)  

Open Ended

Can you think of another country or group of people that would have a traditional economy?

Pure Market Economy

NO government involvement in economic decisions.

Consumers decide WHAT should be produced. They do this through the purchases they make.

Businesses determine HOW the products will be produced. They must be competitive.

WHO buys the products? The people with the most money are able to buy more goods and services.

What's the Problem with Pure Market Economy?

• Difficulty enforcing property

    rights - no laws.

• Some people have few resources to sell - no minimum income.

• Some firms try to monopolize markets - conspiring and price fixing.

• No public goods. - national defense?

Multiple Choice

Is the United States a pure market economy?

• Yes

• No

Pure Command Economy

All resources are government-owned.

One person (dictator) or a group of officials decide WHAT products are needed.

The government runs all businesses, controls all employment, and decides HOW goods and services will be produced.

The government decides WHO receives the products that are produced.  

What is the Problem with Pure Command Economy?

• Consumers get low priority.

• Little freedom of choice – few products.

• Resources owned by the state are often wasted – individuals don’t care if they don’t own it.

Multiple Choice

In Command Economy, does the government control all factors of production?

• Yes

• No

Mixed Economies

Most economies in the world today are mixed. 

Classification is based on how much government intervention there is.

In the U.S. the government accounts for about 1/3 of all U.S. economic activity.

Poll

Which economic system do you think is the best economy?

• Traditional

• Pure Market

• Pure Economy

• Mixed