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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…)
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