Economic Systems Economic Systems and and

GovernmentGovernment

IntroductionIntroduction

In any type of economic systems, three In any type of economic systems, three basic questions must be answered:basic questions must be answered:

1.1. What will be produced?What will be produced?

2.2. How will it be produced?How will it be produced?

3.3. For whom will it be produced?For whom will it be produced?

We classify economic systems We classify economic systems according to how they answer these according to how they answer these

questions.questions.

Traditional EconomyTraditional Economy“That’s The Way We’ve Always Done “That’s The Way We’ve Always Done

It Ville”It Ville” Economic questions Economic questions answered according answered according to custom & to custom & traditiontradition

Production is done Production is done the way it has the way it has always been done.always been done.

ExamplesExamples Rural Rural areas of South areas of South America & AfricaAmerica & Africa

Command EconomyCommand Economy“We Do What We’re Told “We Do What We’re Told

Ville”Ville” Economic questions Economic questions answered according answered according to government to government directiondirection

Government controls Government controls all economic all economic activityactivity

ExampleExample Communist Communist North KoreaNorth Korea

Market EconomyMarket Economy

Economic questions Economic questions answered according answered according to wishes of to wishes of buyers & sellersbuyers & sellers

Individual choice Individual choice determines determines progress of marketprogress of market

ExampleExample United United StatesStates

Question…Question…

Is the United States a PURE Market Is the United States a PURE Market Economy?Economy?

Does it operate without any type of Does it operate without any type of government intervention?government intervention?

Mixed EconomyMixed Economy No system in the world is PURENo system in the world is PURE

Mixed EconomyMixed Economy Economic system that Economic system that incorporates elements of different incorporates elements of different systems (usually command and market)systems (usually command and market)

United States Example:United States Example: MarketMarket Privately owned malls, restaurants, and Privately owned malls, restaurants, and eveneven

entrepreneurshipentrepreneurship

CommandCommand Minimum wage, labor laws Minimum wage, labor laws

TraditionalTraditional “blue laws” No Sunday alcohol “blue laws” No Sunday alcohol sales in somesales in some

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