Econ Ch2 Economic Systems
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Transcript of Econ Ch2 Economic Systems
ChapterChapter
EconomicEconomic
SystemsSystems2
Chapter ObjectivesStudents will learn:
1. The basic questions that any economic system must answer.
2. The basic varieties of economic systems.
3. How the 3 basic types of economic systems differ in their answers to the fundamental economic questions.
4. How the theoretical models of economic systems actually work in the real world.
Economic Systems
What is an economic system?
• System=order, structure, rules
• Economic=factors of production, resources
• Economic system=the way a country decides to use its resources
The Basic Economic Questions
1. What to produce– ALLOCATION OF
RESOURCES
2. How to produce– PRODUCTION &
EFFICIENCY
3. For whom to produce– WHO GETS WHAT? WHY?
Kinds of Economic Systems
1. Traditional
2. Command
3. Market
Traditional Economies
– Based on previous generations
– Stable– No incentives– No changes / no freedom– Very rare, doesn’t exist in
very many places
Command Economies
– Central authority makes decisions
– Government owns or controls factors of production
– No freedom– Controls distribution– National planners– Quick in emergencies– Examples?
Market Economies
– Free market/laissez-faire– Invisible hand/Adam Smith– Self-interest– Workers exchange labor for wages– Use income to buy goods &
services– Decisions based on prices– Efficient approach– Poor are at a disadvantage
Comparing Command & Market
Economic Systems in the
Real World
All economies
are mixed.
Changing Economies
More and more, countries are turning to capitalism and free markets
Transitional economies =– Command Market – Creates new markets, new ideas, and new
relationships– Examples?