TYPE

S OF

ECONOMIES

TRADITIONAL ECONOMY

• Long established patterns of what is to be done.

• Customs and rituals make choices!

• Retain economic positions of parents/grandparents.

• Tradition decides your fate (job)

MARKET ECONOMY

• Based on consumers and their buying decisions (rather than gov. control)

• Individuals decide how resources are allocated & goods distributed.

• Individuals decide what to consume.

• Pure market: Government is absent from economic affairs!

COMMAND ECONOMY

• Government controls ALL economic activity.

• State decides how to use/distribute resources.

• Example: Communism! Socialism!

• Market plays no role in production decisions.

MIXED ECONOMY• Combines SOME elements of Market and Command

economies.

• Decisions made in market by individuals but government ALSO plays a role in allocation/distribution of resources.

• Which country is an example of a mixed economy?

GOVERNMENTAL

THEORIE

S!

HO

W D

I D G

OV

ER

NM

EN

T C

OM

E T

O B

E? ?

EVOLUTIONARY THEORY

• State evolved from family!• Head of primitive family served as

the government authority!• Once families got too big, one

person took over to be the head • Example: Abraham’s descendants in

the Old Testament of Bible.

FORCE THEORY

• Born of force!• The state would not exist except for

the need to resist an enemy!! • So they were all brought together

(people in the same area) and were under the authority of one person/group.

DIVINE RIGHT THEORY

• Idea that certain people are chosen by a god/gods to rule! (Old theory!!)

• Ancient Egyptians, Chinese and Aztec’s believed this!

SOCIAL CONTRACT THEORY

• Idea that the government will provide protection, social order and services in exchange for payment and obedience of the people.

• All people have “natural rights” •Right to life, liberty and property !!