Economic SystemsEconomic Systems

Economics Book Chapter 2Economics Book Chapter 2 (p.22- 45)(p.22- 45)

Pages to read p. 24-25, 29-31, 35-42Pages to read p. 24-25, 29-31, 35-42

© Judith Schieszer for use in Shawnee Mission School

© NCEE Virtualeconomics

Economic SystemsEconomic Systems

Economic systems can Economic systems can be categorized be categorized according to according to who makes who makes most of the most of the decisionsdecisions in in an economyan economy. .

The institutional framework of The institutional framework of formalformal and and informalinformal rulesrules that a that a society uses to determine:society uses to determine:

What What should be produced?should be produced?How How should it be should it be

produced?produced?For whom For whom should it be should it be

produced?produced?

Traditional EconomyTraditional Economy

Economic Economic decisions decisions generally generally repeatrepeat those those made in made in earlierearlier times or times or by by previous previous generationsgenerations. .

What:What:– The goods and services produced The goods and services produced

today are the today are the samesame as those as those produced in previous generationsproduced in previous generations

How:How:– Method of production is the Method of production is the samesame

as the previous generationas the previous generation For whom:For whom:

– Finished goods and services are Finished goods and services are tradedtraded locallylocally for other finished for other finished goods and servicesgoods and services

Centrally Centrally Planned/CommandPlanned/Command

Economic decisions are Economic decisions are made largely made largely by an by an authority such as a authority such as a government agencygovernment agency..

What:What:– A A central planning authority central planning authority decides decides

what goods and services to produce.what goods and services to produce. How:How:

– A A central planning authority central planning authority determines determines sitessites of factories, number of factories, number and and wageswages of of employeesemployees, , methodsmethods of of production, and production, and quotasquotas for each good for each good and service.and service.

Who:Who:– Members of Members of party in power and other party in power and other

designated individuals designated individuals receive receive finished products finished products firstfirst and and othersothers in in the society get the products the society get the products secondsecond..

Market EconomyMarket Economy

Economic decisions are Economic decisions are made by made by individuals in individuals in their roles their roles as consumers, as consumers, workers, business owners, workers, business owners, and savers.and savers.

What:What:– Businesses seek profits producing Businesses seek profits producing

what what consumers wantconsumers want.. How:How:

– Individual business owners decide Individual business owners decide the method of production to equal the method of production to equal or better or better competitioncompetition..

Who:Who:– Finished goods and services are Finished goods and services are

distributed to those distributed to those individuals who individuals who are willing and able to buy themare willing and able to buy them..

Mixed Market EconomyMixed Market Economy

Like the Market system Like the Market system except except the the government has some rules government has some rules and regulations and regulations that individually that individually owned businesses have to owned businesses have to follow. follow.

The government also owns some The government also owns some businessesbusinesses..

What:What:– Businesses seek Businesses seek profitsprofits producing producing

what consumers want. what consumers want. The The government has some rules and government has some rules and regulations on businesses. regulations on businesses. The The government government producesproduces goods and goods and services to services to fillfill the the needneed of of societysociety as a as a wholewhole. .

How:How:– Individual business owners decide the Individual business owners decide the

method of production to equal or method of production to equal or better competition. better competition. Producers, Producers, consumers, and government consumers, and government determine the goods and services determine the goods and services producedproduced. .

Who:Who:

– Finished goods and services are Finished goods and services are

distributed to those individuals who distributed to those individuals who

are willing and able to buy themare willing and able to buy them. .

– Government produced goods and Government produced goods and

services are services are distributed to those distributed to those

individuals as the government individuals as the government

determines. determines.

4 min