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Objectives

List the three basic economic questions. List the three types of economic systems. Explain who answers the economic

questions in each type of economy. Describe the three major features of a

market economy. Explain why most economies are mixed.

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Marketing Terms

traditional economy command economy centrally planned ec

onomy market economy consumer economy capitalism

capitalist economy free enterprise private enterprise free market

economy mixed economy transition economy

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The Three Questions

The problem of scarcity leads to the three economic questions What should we produce? How should we produce it? Who should get the products?

#1 Who answers these questionsfor the U.S. economy?

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What Should WeProduce?

or

CattleCorn

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How Should WeProduce It?

or

ComputerPaper and Pencil

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Who Should Get the Products?

or

CommonersQueen

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Types ofEconomic Systems

Economic systems are classified based on who answers the three

questions

Types of economic systems traditional command market

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Traditional Economy

In a traditional economy elders answer

the economic questions– based on

traditions

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Traditional Economy

Traditional economies developed early in human history

Following tradition is seen as a way of keeping the society safe and healthy

There is pressure on traditional economies to become modern.

Very few traditional economies exist.

#2. What is tradition?

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Command Economy

In a command economy the national government makes all the

economic decisions

Main features government ownership of land and capital government control of labor government control of all economic activity

#3. How could government control of the economy affect your life?

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Command Economy

A command economy is also called a centrally planned economy because the national government is also called

the central government, and the central government plans

– all aspects of the economy

Ideally, in a command economy everyone shares equally in the limited

resources Socialist Economy

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Market Economy

In a market economy individuals answer the economic

questions

Market economies developed with a political philosophy called democracy democracy emphasizes individual rights market economies emphasize individual

choice

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Market Economy

A market economy is also called a consumer economy because consumers have a great impact

on this economy

Three features of a market economy private property economic freedom market forces

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Private Property

Private property individuals have

the right to buy and own – land– capital goods

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Private Property

Capitalism and capitalist economy are two more terms for a market economy because individuals

can own capital

How is this different from acommand economy?

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Economic Freedom

Economic freedom individuals are free

– to make their own economic decisions

– to start any legal business

– to decide what career to choose

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Economic Freedom

A market economy is also called free enterprise and private enterprise

because – enterprise is another term for business– people are free to start enterprises– private individuals (as opposed to the

government) can start enterprises

#4 How is this different from acommand economy?

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Market Forces

Market forces control a market economy.

Free market economy is another term for market economy because market forces are “free” to

influence the economy

#5. How is this different from acommand economy?

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Command and Market Economies

Features Command Market

Political philosophy CommunismSocialism

Democracy

Who answers the three economic questions?

Central government

Individuals

Who controls the economy?

Central government

Market forces

Who owns the economic inputs?

Central government

Individuals

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Command and Market EconomiesFeatures Command Market

Main features

Government ownership of land and capitalGovernment control of laborGovernment control of all economic activity

Private propertyEconomic freedomMarket forces: supply and demand, profit motive, and competition

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Command and Market EconomiesFeatures Command Market

Other names

Centrally planned economyCommunist economySocialist economyWelfare state

CapitalismCapitalist economyConsumer economyFree enterpriseFree market economyPrivate enterprise

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Mixed Economies

Most modern economies are mixed. Why?

both market and command economies have flaws

market economies are unstable command economies are too complicated to

successfully plan and control

For these reasons, there are no pure command or pure market economies

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Mixed Economies

In a mixed economy both the government and individuals

– are involved in making economic decisions

Four types of mixed economies mixed command economy transition economy mixed socialist economy mixed market economy

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Mixed CommandEconomy

Mixed command economy command economy with some market

elements

During much of the 20th century, China was a communist country with a pure command economy but the Chinese economy had difficulty

meeting the needs of its people

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China had over 1.3 billion people in 2006, more than any other country

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Mixed CommandEconomy

In 1978, the Chinese government started reforms to bring aspects of a

market economy to China– less government involvement in

farming and industry– individuals allowed to start and run

small businesses

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Transition Economy

Transition economy changing from command to market

The Soviet Union was one of the great command economies of the 20th century its economy had trouble providing for the

needs of its citizens economic and other problems caused the

Soviet Union to break up in 1991 it became 15 independent countries

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Many of the newly independent countries have transition economies

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Mixed SocialistEconomy

Mixed socialist economy democratic political system economy that combines market and

command elements

France, Sweden, and other countries with a mixed socialist economy are called social democracies

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Mixed SocialistEconomy

Market/Democratic elements citizens vote and have many rights citizens can start and run businesses

Command/Socialist elements government collects a large percent of

income as taxes, to use to ensure a decent standard of living for everyone

government owns and operates major industries

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Mixed MarketEconomy

A mixed market economy is a market economy with some command elements

The United States is a mixed market economy because government helps people in need through social security

and welfare benefits regulates business collects income taxes, but not as much as in

a social democracy

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A Continuum

Continuum a graph that shows two opposite qualities

– that blend in proportion from one end to the other

a good way to look at modern economies

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A Continuum

A continuum of economic systems has a pure command economy at the left

– total government control a pure market economy at the right

– individual and market forces totally in control

A country’s position on the continuum depends on the amount of government or individual control

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Amount of governmental control

Legend

Amount of individual control

Pure Command

Pure Market

Continuum of Economic Systems

Cuba China FranceSweden

United States

Where on the continuum dothe following countries belong?

Cuba, China, France, Sweden, United States

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Review

What are the three economic questions? What are the three types of economies? What are three features of a market

economy? How is a command economy different

from a market economy? Why are most economies mixed?

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Glossary

capitalism. Another term for market economy.

capitalist economy. Another term for market economy.

centrally planned economy. Economy in which the national government makes all the economic decisions; also called command economy.

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Glossary

command economy. Economy in which the national government makes all the economic decisions; also called centrally planned economy.

consumer economy. Another term for market economy because consumers have a great influence on this type of economy through what they buy and how much they buy.

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Glossary

free enterprise. Another term for market economy.

free market economy. Another term for market economy.

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Glossary

market economy. Economy in which individuals answer the economic questions and market forces are allowed to operate; also called capitalism, capitalist economy, consumer economy, free enterprise, free market economy, and private enterprise.

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Glossary

mixed economy. Economy in which both the government and individuals are involved in making economic decisions.

private enterprise. Another term for market economy.

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Glossary

traditional economy. Economy in which the economic questions are answered by the elders based on the society’s traditions.

transition economy. Economy that is changing from command to a more market economy.

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