Comparative Comparative Economic SystemsEconomic Systems

Economic SystemEconomic System

An economic system is the method used An economic system is the method used by a society to produce and distribute by a society to produce and distribute goods and services.goods and services.

The Three Basic Economic The Three Basic Economic QuestionsQuestions

Because of scarcity each economic system Because of scarcity each economic system must answer three basic economic questions. must answer three basic economic questions. These questions are: These questions are:

What to produce?What to produce? How to produce?How to produce? For whom to produce?For whom to produce? Each economic system answers these Each economic system answers these

questions in different ways.questions in different ways.

Traditional Economic Traditional Economic SystemSystem

Economic system that relies heavily on habit, Economic system that relies heavily on habit, custom, or ritual to answer the three economic custom, or ritual to answer the three economic questions.questions.

Traditional economies typically focus on one Traditional economies typically focus on one particular method of livelihood. particular method of livelihood.

Economic roles are often passed from Economic roles are often passed from generation to generation.generation to generation.

Typically found in remote areas around the Typically found in remote areas around the world.world.

Command Economic Command Economic SystemSystem

Economic system where the government Economic system where the government answers the three basic economic answers the three basic economic questions. questions.

Command economic systems are Command economic systems are typically found within communist political typically found within communist political systems.systems.

Market Economic SystemMarket Economic System

Economic system where individuals Economic system where individuals (consumers/demand) and businesses (consumers/demand) and businesses (sellers/supply) answer the three basic (sellers/supply) answer the three basic economic questions through voluntary economic questions through voluntary exchange.exchange.

Capitalism and free enterprise are terms Capitalism and free enterprise are terms that are synonymous with a market that are synonymous with a market economic system.economic system.

Adam SmithAdam Smith

He is considered to be the father of the market He is considered to be the father of the market economic system. He articulated his ideas in economic system. He articulated his ideas in the book the book Wealth of NationsWealth of Nations (1776). (1776).

The primary thesis of Smith’s book was the The primary thesis of Smith’s book was the idea of idea of laissez fairelaissez faire. This means that the . This means that the government should not intervene in the government should not intervene in the economy. He felt that the economy should be economy. He felt that the economy should be based upon voluntary exchange.based upon voluntary exchange.

Supply (Voluntary Supply (Voluntary Exchange)Exchange)

Supply is the willingness of sellers to Supply is the willingness of sellers to produce goods and provide services. produce goods and provide services.

The law of supply tells us that suppliers The law of supply tells us that suppliers are more willing to produce goods and are more willing to produce goods and provide services when they are able to provide services when they are able to charge a higher price. charge a higher price.

Demand (Voluntary Demand (Voluntary Exchange)Exchange)

Demand is the willingness and ability of Demand is the willingness and ability of consumers to purchase goods and consumers to purchase goods and services.services.

The law of demand tells us that The law of demand tells us that consumers are more willing and able to consumers are more willing and able to buy goods and services at lower prices.buy goods and services at lower prices.

Supply and Demand Supply and Demand EquilibriumEquilibrium

The market system is based upon finding a The market system is based upon finding a price where the quantity supplied is equal to price where the quantity supplied is equal to the quantity demanded.the quantity demanded.

This is called market equilibrium.This is called market equilibrium. When the quantity supplied and the quantity When the quantity supplied and the quantity

demanded are not equal this is a condition demanded are not equal this is a condition called disequilibrium.called disequilibrium.

The actions of buyers and sellers will move the The actions of buyers and sellers will move the market towards equilibrium.market towards equilibrium.

I will graph equilibrium and disequilibrium on I will graph equilibrium and disequilibrium on the board.the board.

Mixed Economic SystemMixed Economic System

All modern economic systems are some All modern economic systems are some type of mixed system. This means that type of mixed system. This means that the economic system combines elements the economic system combines elements from traditional, command, and market from traditional, command, and market systems. systems.

Some economic systems are more Some economic systems are more heavily based upon one of the basic heavily based upon one of the basic forms of economic systems than the forms of economic systems than the others.others.

The United States The United States

The United States has a mixed economic The United States has a mixed economic system that is more heavily weighted system that is more heavily weighted towards a market system.towards a market system.

I’m going to draw an economic spectrum I’m going to draw an economic spectrum on the board with various countries and on the board with various countries and where they lie in relation to the command where they lie in relation to the command and market systems.and market systems.