III. Economic Systems

•Every single society has an economic system.

• The purpose of an economic system is to make and distribute goods and services.

• The roles of individuals, businesses, and government vary in each system.

• There are four basic economic systems: Traditional, Market, Command, and Mixed

Traditional Economies

•An economy where people make economic decisions based on their customs and habits.

• needs and wants are usually established through hunting and farming.

• This is usually the traditions of their ancestors

• Culture is seen as more important than having a strong economy

•People in traditional economies usually do not want to change their basic way of life.

• In today’s world, traditional economies are not common

Market Economies

•An economy in which individual consumers and producers make economic decisions

• This type of economy is also called capitalism, or free market.

• Encourages people to start new businesses by giving them economic freedom

Command Economies

•In this form of government, the central government makes all economic decisions

• also called a centrally planned economy

• little or no economic freedoms for individuals

• producers and consumers make very few basic economic decisions

Mixed Economy

•In reality pure market or command economies do not exist

• most societies have mixed economies – different levels of government control

• combines different elements of traditional, market, and command economic systems

•The United States has about the closest thing to a pure market economy

• However, it is still considered a mixed economy because of minor government regulations

• For example, the government passes laws to protect the rights of consumers

• The government also influences economic growth through jobs and services

•Countries like North Korea have as close to a pure command economy as you can get, but are still considered mixed.

• The government controls almost all economic decisions.