unit one section five econ systems

8/8/2019 Unit One Section Five Econ Systems

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Economic SystemsEconomic SystemsUnit One, Lesson FiveUnit One, Lesson Five

Berryhill EconomicsBerryhill Economics


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Economic SystemsEconomic Systems

An economic system is an organized way ofAn economic system is an organized way ofproviding for the wants and needs of theproviding for the wants and needs of the

societys people.societys people.It is how societies choose to answer ourIt is how societies choose to answer our

three basic questions. (What, How, and Forthree basic questions. (What, How, and ForWhom?)Whom?)


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Traditional EconomiesTraditional Economies

In traditional economies, the allocation ofIn traditional economies, the allocation ofscarce resources, and nearly all otherscarce resources, and nearly all other

economic activity, stems from ritual, habit,economic activity, stems from ritual, habit,or custom.or custom.

Usually, habit and custom also dictate mostUsually, habit and custom also dictate mostsocial behavior, and individuals are not freesocial behavior, and individuals are not free

to make decisions on what they want orto make decisions on what they want orwould like to have.would like to have.


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Can anyone think of any traditionalCan anyone think of any traditionaleconomies that exist today?economies that exist today?

Are there any instances of traditionalAre there any instances of traditionaleconomies in our society today?economies in our society today?


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AdvantagesAdvantages

----Everyone knows their roleEveryone knows their roleWHATWHAT

questions answered for themquestions answered for them----Everyone knows HOW to produce (sameEveryone knows HOW to produce (sameas their parents did before them)as their parents did before them)

----FOR WHOM questions answered byFOR WHOM questions answered bycustoms and traiditionscustoms and traiditions


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Disadvantages:Disadvantages:

----Discourages new ideas (and therefore newDiscourages new ideas (and therefore new

economic growth)economic growth)----Lack of progress leads to lower standardLack of progress leads to lower standardof livingof living


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Command EconomiesCommand Economies

A command economy is one in which aA command economy is one in which acentral authority makes most of the WHAT ,central authority makes most of the WHAT ,

HOW, and FOR WHOM decisions.HOW, and FOR WHOM decisions.Economic decisions are made by theEconomic decisions are made by the

government: the people have little, if any,government: the people have little, if any,influence over how the basic economicinfluence over how the basic economic

questions are answered.questions are answered.


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Can anyone think of some examples ofCan anyone think of some examples ofcommand economies that exist today orcommand economies that exist today or

have existed in history?have existed in history?Are there any instances where our societyAre there any instances where our society

has command economy traits?has command economy traits?


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Advantages:Advantages:

----Can change direction in a relatively shortCan change direction in a relatively short

period of timeperiod of time----There is little uncertainty about ones roleThere is little uncertainty about ones rolein the societyin the society

----Government provides socialGovernment provides socialreforms/programs for little to no cost to thereforms/programs for little to no cost to thepublicpublic


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Disadvantages:Disadvantages:

----Not designed to meet the wants of consumersNot designed to meet the wants of consumers

----System does not give people incentive to workSystem does not give people incentive to workhardhard

----Large decisionLarge decision--making bureaucracymaking bureaucracy

----No flexibilityNo flexibility

----Little to no rewards for individual incentivesLittle to no rewards for individual incentives


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Market EconomiesMarket Economies

In a market economy people and firms actIn a market economy people and firms actin their own best interest to answer thein their own best interest to answer theWHAT, HOW, and FOR WHOM questions.WHAT, HOW, and FOR WHOM questions.

A market is any mechanism that allowsA market is any mechanism that allowsbuyers and sellers to find each other andbuyers and sellers to find each other andtrade their goods and services.trade their goods and services.

Peoples decisions influence the WHAT,Peoples decisions influence the WHAT,HOW, and FOR WHOM.HOW, and FOR WHOM.


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Can anyone think of any examples ofCan anyone think of any examples ofmarket economy today or in history?market economy today or in history?

Any examples of a market economy in ourAny examples of a market economy in ourown society?own society?


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Advantages:Advantages:----Can adjust to change over timeCan adjust to change over time----High degree of individual freedomHigh degree of individual freedom

----Relatively small degree of governmentRelatively small degree of governmentinterferenceinterference----Decision making is decentralized (not given toDecision making is decentralized (not given tothe central government)the central government)

----Variety of goods and services available toVariety of goods and services available toconsumersconsumers----High degree of customer satisfaction andHigh degree of customer satisfaction andstandard of livingstandard of living


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Disadvantages:Disadvantages:----Doesnt provide basic needs for everyone in theDoesnt provide basic needs for everyone in thesociety (poor, elderly, sick)society (poor, elderly, sick)

----Doesnt provide public services (system ofDoesnt provide public services (system ofjustice, national defense, health care)justice, national defense, health care)----High degree of uncertaintyHigh degree of uncertainty----Must be reasonably competitive, resources mustMust be reasonably competitive, resources mustbe reasonably free to move from one activity tobe reasonably free to move from one activity toanother, and consumers need access to adequateanother, and consumers need access to adequateinfo to make wise decisions or economy can failinfo to make wise decisions or economy can failvery easilyvery easily


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Mixed EconomyMixed Economy

An economy in which there are someAn economy in which there are someelements of a traditional economy, someelements of a traditional economy, someelements of a command economy, andelements of a command economy, andsome elements of a market economysome elements of a market economy

What the U.S. is said to haveWhat the U.S. is said to have

unit one section five econ systems

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