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CH 2 Notes- Economic Systems

The document outlines the different economic systems that influence how goods and services are produced and distributed, including traditional, command, market, and mixed economies. It explains how each system answers fundamental economic questions and details the features of a free market economy, particularly in the context of a pizzeria. The document also illustrates how a pizzeria would operate under each economic system, highlighting the roles of government and individual decision-making.

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17 views15 pages

CH 2 Notes- Economic Systems

The document outlines the different economic systems that influence how goods and services are produced and distributed, including traditional, command, market, and mixed economies. It explains how each system answers fundamental economic questions and details the features of a free market economy, particularly in the context of a pizzeria. The document also illustrates how a pizzeria would operate under each economic system, highlighting the roles of government and individual decision-making.

Uploaded by

hasbrandtk37
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Economic Systems

How the Government influences


how I make money.
Economic Systems
• The method used by a society to produce
and distribute goods and services.
• Or, How the government tells us what we
can get and how to get it!
All Economic Systems Must
Consider the Following Questions:
1. What goods and services to produce?
2. How will they produce them?
3. Who will get them?

• Each economic system answers these


questions in a DIFFERENT WAY.
Types of Economic Systems
There are 3 basic types of economic
systems:

1.Traditional
2. Command
3. Market
4. Mixed
1. Traditional Economy
• Economic questions are answered by
habits and customs (the way it has always
been done)
• Children work the same jobs parents
worked, often farming or hunter/gatherer
• Dislike Change
• Ex. Inuit, the Amish,
Bush People
2. Command Economy
• The government answers the basic
economic questions
• Advantages: able to act quickly in
emergencies, provide for all people
equally
• Disadvantages: Inefficient, no incentive to
work hard or be creative
• Ex. Communist Countries (China,
Vietnam, North Korea, former
Soviet Union, Cuba)
3. Free Market Economy
• Economic questions are answered by
individual buyers and sellers.
• Supply and demand influence economy
• People act out of self interest; motive for
profit (money) drives the economy
• Also known as FREE ENTERPRISE or
CAPITALISM
• Ex. The United States, Western
Europe, Japan
4. Mixed Economy:
• No economy is pure market, pure
command or pure traditional. Elements of
each appear in all economies. Some have
more elements of one economy than
another.

• While the United States is mostly a free


market economy, it does have elements of
a command economy.
Features of American Free Market
Economy
1. Economic Freedom: individuals have the
right to choose

2. Competition: more than one producer of


good/services insures choice

3. Private Property: individuals have the


right to own their own property, including
business
Features of American Free Market
Economy (cont)
4. Self-Interest: individuals make
decisions based on what is best for them

5. Voluntary Exchange: individuals may


freely buy and sell goods

6. Profit Motive: individuals are driven by a


desire to profit (make money)
Features of American Command
Economy
1. Government regulation of some business
practices
• Ex. Wages, labor hours,
safety practice.
2. Government limits certain choices
• Ex. Cannot buy or produce certain
goods/services
3. Government provides aid to the needy
• Ex. Medicare, Medicaid, welfare
My Pizzeria
• How would my pizzeria function under
different economic systems?
My Pizzeria in a Free Market
• I answer the basic economic questions!
• I determine how much cheese and
pepperoni goes on the pizza
• I determine the quality of the cheese and
pepperoni
• I set my employees wages
• I set my business hours
My Pizzeria in a Command
Economy
• The government answers the basic
economic questions
• The government sets the amount of
cheese and pepperoni on each pizza
• The government determines quality of
cheese and pepperoni
• The government sets employees wages
• The government sets business hours
Problem: What does the government know
about pizza?
My Pizzeria in a Mixed Economy
• The Government and I both answer the
basic economic questions
• I determine the amount of cheese and
pepperoni on the pizzas; government
determines the quality of cheese and pizza
• I set employee wages; government sets
minimum wage for employees
• I determine business hours; government
determines whether I am safe to be open
or not

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