Economic Systems

1. Traditional Economic System2. Free Enterprise System (Market System)3. Command Economic System4. Mixed Economic System

1.Traditional Economic System

• Simple economic activity Farming, hunting and gathering

• Reliance on custom and tradition Passed down from generation to generation, very

little change over time; very effective

• Technology Simple (Ex.- Horse and plow

bow and arrow)

1.Traditional Economic System

• Family labor and gender roles

• ExamplesCan still be found in parts of

Asia, Africa and South America

(Male/female)

Men, women and children all have jobsto do

2. Free Enterprise System (Market/Capitalist)

• Individual ownership of economic resources

Land, labor, capital,

Entrepreneurialship

• Individual control of economic resourcesIndividuals decide how goods and services are produced and distributed.

• Profit motive and business competition People open a business

with the hope of making money Compete with similar businesses

• Significant individual economic freedom– Individuals make their own decisions– What to buy or sell/ how much to sell for/spend for

Examples: Most developed countries (ex. USA)

2. Free Enterprise System (Market/Capitalist)

Behind the Free Enterprise/Market System/Capitalism

• Capitalism-economic system based on private ownership and the investment of wealth for profit

CAPITAL=necessary to build

factories, purchase machines,

secure (get) raw materials

and pay workers

• Adam Smith

author of “Wealth of Nations”

Behind the Free Enterprise/Market System/Capitalism

• Law of Supply and Demand: Sets price

demand/ supply- $

demand/ supply- $ – Law of Competition: quality/cost

• Laissez-faire: Government should provide a safe atmosphere for businesses to operate, but should not regulate sales/products

Q: Does the US have pure capitalism today???

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Tickle MeElmo

The Invisible Hand

• The market will regulate itself (people will buy or not buy, influencing eco. development)

Behind the Mixed System-Socialism

• Socialism- economic system in which the factors of production are owned by the public and operate for the welfare of all.

• Response to the abuses of the Industrial Revolution on workers. Many people blamed capitalism for abuses.

• Socialist government must be a democracy! Ex.

Great BritainSweden

Behind Socialism/Welfare State

• Government should control all major industries.

• Small business allowed, but subject to government regulation

• The state (government) is responsible for the welfare of its people.

• Wealthy and educated classes should help lower classes

Q: Does the U.S. have elements of socialism?

Reform Movements• Union Movement: Unions speak for all of the workers in a

particular trade. Engage in collective bargaining which is negotiations between workers and their employers.

• Reform Laws: Created to end worst abuses of industrialization. Set standards for age, hours and wages.

• Abolition Movement: Ex:England: William Wilberforce -deeply religious member of the English Parliament. Worked to end the slave trade and slavery itself in the British Empire.

• Women’s Rights Movement: Grew out of abolition movement. Wanted equal pay for work.

3. Command Economic System

• Government ownership of economic resourcesEx.-Factories and farms

• Government control of economic resourcesDecides how goods are produced and distributed. How much of a product is made.

3. Command Economic System• No profit motive and no business

competitionLeads to inferior products

• Reduced individual economic freedomGovernment controls the prices.

• ExamplesU.S.S.R. (Soviet Union)

Today: Cuba, North Korea

Behind the Command System

• Marxism-economic system in which production and distribution are owned by the people.

• Karl Marx-wrote “Das Capital”

and “The Communist Manifesto”

• No private ownership

• Radical/extreme form of socialism

Behind the Command System

• Economic interpretation of history• Class struggle “Have’s” take advantage of

the “Have nots” • The Industrial Revolution intensified the

class struggle Proletariat (workers) v. capitalist bourgeoisie (owners)

• The labor of workers creates profit for employers

• Ultimate communist society is classless and without government

4 Methods of Production

1. Subsistence AgricultureFarming for home use not,

market use.

Subsistence farmers produce all or most goods his family needs with little left over to sell

Subsistence agriculture is most commonly associated with traditional economic systems.

4 Methods of Production

2. Cottage Industry Cottage industry is also known as home industry. Goods are produced in people’s homes, often by

adults and older children working together. The goods are then sold. Involves the use of simpler equipment and

manufacturing techniques than commercial industry. Cottage industry is most closely associated with

traditional economic systems

4 Methods of Production

3. Market-Oriented Agriculture

Brought about by the Enclosure Movement and Scientific Farming

-Involves the production of farm goods for sale on the commercial market instead of for home use.

-Market-oriented agriculture is associated with both market and command economic systems.

4 Methods of Production

4. Commercial Industry Commercial Industry involves the large-scale

production of goods Goods are usually produced in factories with machinery

and a large number of workers Commercial industry is a more complex production

method than cottage industry. Commercial industry is associated with both market and

command economic systems.