Transcript Economic Systems

Comparative
Economic Systems
Economic System
 An economic system is the method used
by a society to produce and distribute
goods and services.
The Three Basic
Economic Questions
 Because of scarcity each economic system
must answer three basic economic questions.
These questions are:
 What to produce?
 How to produce?
 For whom to produce?
 Each economic system answers these
questions in different ways.
Traditional Economic
System
 Economic system that relies heavily on habit,
custom, or ritual to answer the three economic
questions.
 Traditional economies typically focus on one
particular method of livelihood.
 Economic roles are often passed from
generation to generation.
 Typically found in remote areas around the
world.
Command Economic
System
 Economic system where the government
answers the three basic economic
questions.
 Command economic systems are
typically found within communist political
systems.
Market Economic System
 Economic system where individuals
(consumers/demand) and businesses
(sellers/supply) answer the three basic
economic questions through voluntary
exchange.
 Capitalism and free enterprise are terms
that are synonymous with a market
economic system.
Adam Smith
 He is considered to be the father of the market
economic system. He articulated his ideas in
the book Wealth of Nations (1776).
 The primary thesis of Smith’s book was the
idea of laissez faire. This means that the
government should not intervene in the
economy. He felt that the economy should be
based upon voluntary exchange.
Supply (Voluntary
Exchange)
 Supply is the willingness of sellers to
produce goods and provide services.
 The law of supply tells us that suppliers
are more willing to produce goods and
provide services when they are able to
charge a higher price.
Demand (Voluntary
Exchange)
 Demand is the willingness and ability of
consumers to purchase goods and
services.
 The law of demand tells us that
consumers are more willing and able to
buy goods and services at lower prices.
Supply and Demand
Equilibrium
 The market system is based upon finding a
price where the quantity supplied is equal to
the quantity demanded.
 This is called market equilibrium.
 When the quantity supplied and the quantity
demanded are not equal this is a condition
called disequilibrium.
 The actions of buyers and sellers will move the
market towards equilibrium.
 I will graph equilibrium and disequilibrium on
the board.
Mixed Economic System
 All modern economic systems are some
type of mixed system. This means that
the economic system combines elements
from traditional, command, and market
systems.
 Some economic systems are more
heavily based upon one of the basic
forms of economic systems than the
others.
The United States
 The United States has a mixed economic
system that is more heavily weighted
towards a market system.
 I’m going to draw an economic spectrum
on the board with various countries and
where they lie in relation to the command
and market systems.