Three Economic Systems
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Economic Systems Traditional Command Market
Transcript of Three Economic Systems
Economic Systems
Traditional Command Market
Scarcity
Scarcity Is caused by unlimited wants and limited resources. The existence of scarcity forces us to make choices
Three Questions of Economics
Unlimited Needs and Wants
Scarcity Limited Resources
Three Questions of EconomicsWhat to produce?How to produce it?
Who gets it?
Traditional Command Market
Three Questions of Economics
Scarcity forces every society to answer three questions
What to produce since resources are scarce we must decide what to produce
How to produce we must decide what combinations of resources to use to produce the good
Who gets it how will we decide to who gets the good after its been produced
Economic System
An economic system is society’s way of coordinating the production and consumption of goods and services
It is basically the way a society answers the three questions of economics
Economic System
Traditional System
A traditional system is one in which the three questions of economics are answered by tradition and custom
Three Questions under a Traditional System
Native people in Alaska hunt whale The whales are hunted using
mostly traditional methods
What How
Who Gets
Traditional System
There is a very elaborate system set up by Inuit's to determine who gets what part of the whale, when and how much
Command System
A command system is one in which some central authority makes the decisions
Stalin: USSR Mao: China Karl Marx
Command System
This is a store in the old Soviet Union. Notice the empty shelves.
Command System
Command systems usually will place an emphasis on the production of capital goods and not consumer goods.
Command SystemCommand systems do produce stability with employment and prices but there is a loss of freedom.
In North Korea, women are allowed to only have one of the listed hairstyles
Market SystemA market system is one in which the allocation of goods and services is determined by supply and demand
Market System
Supply and Demand determine the price of the good, and the price of the good determines its value in our economy. Goods that are highly valued have high prices. This high price encourages consumers to cut back on the good, but it also encourages producers to produce more of the good.
Market System
Anybody living in Midland/Odessa is aware of how hard it is to find an apartment. As the demand for apartments increased, rents increased as well. As rents increased, it became more profitable to build apartments. More apartments got built and it became much easier to get an apartment. All this happened through the mechanism of the market system.
Market System
Market systems are very dynamic. There can be periods of unemployment and price instability, but the system will allocate goods and services to their highest valued use, and the system will create new goods and services and increase the standard of living of society.
Market System
Japan, South Korea, and the US are examples of market based economies.
The Case of China
The People’s Republic of China has been transitioning from a command economy to a market based economy
The Case of China
Required reading has gone from Mao’s “Little Red Book” on how to be a good communist to reading “Vogue” to keep up with fashion trends.
The Case of China
The question is whether China continues its economic growth and become the largest economy in the world or do they stagnate
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