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Economic Systems. AN EXPLORATION OF TRADITIONAL, MARKET, COMMAND, AND MIXED ECONOMIES. Economic Systems. Economics is the study of how people use limited resources to meet unlimited demand. Some people like to think of economics as a study of supply and demand.

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economic systems

Economic Systems


economic systems1
Economic Systems

Economics is the study of how people use limited resources to meet unlimited demand.

Some people like to think of economics as a study of supply and demand.

Economic systems must answer the following questions:

What to produce?

How to produce?

For whom to produce?

traditional economy
Traditional Economy
  • A traditional economy is an economy based on custom or tradition.
  • Traditional economies do not use money. They barter for goods instead
  • In traditional economies people often do work because it is the same work that their family has always done.
    • Ex: Farms often run in families and are handed down from generation to generation.
market economy capitalism1
Market Economy -Capitalism-

1 ounce gold = $1,670

In a market economy producers make goods based on the amount of demand among consumers. Consumers in turn pay for items based on their supply.

For instance, gold is greatly demanded by people across the world, but its supply is limited. Therefore, gold is expensive.

Can you think of any other items that have a limited supply?

market economy
Market Economy



market economy1
Market Economy



traits of a market economy capitalism
Traits of a Market Economy –Capitalism-

Freedom of choice and individual incentive

Individuals choose how they want to make money

Private ownership and control of resources

Free enterprise

Competition among businesses

The possibility of profits (you can get as rich as you want)

how a market economy works
How a Market Economy Works…

Entrepreneurship and risk taking are rewarded with big financial gains.

Private property rights are strictly enforced even when they result in many poor people and few very wealthy people.

Producers decide what to produce based on consumer tastes and demands.

Productivity results in more personal wealth

Government’s role in the economy is limited

The economy is based on almost entirely on supply and demand

Private individuals and companies own businesses and industry

criticism of market economies
Criticism of Market Economies

Often result in unequal societies where there are a few very wealthy individuals and many poor people.

Market economies often encourage free trade that enables large private companies to exploit the laborers or the resources of less-developed nations. For instance, most of the clothing worn by Americans is made in China by workers who earn less than a $1 an hour.

Market economies often result in economic monopolies (when one company controls a business sector) that stop competition and result in higher prices

the u s capitalism
The U.S. & Capitalism
  • Free Enterprise: Not entirely.
    • Government regulates foreign trade and owns property
  • Governmental Influence: Has increased over time.
    • Today government is the single largest buyer of goods
    • Regulates the economy for various reasons
    • Has set up many organizations to help people get jobs and perform other social functions
  • Mixed-Market Economy: America
    • Free enterprise is combined with government decisions and support in the marketplace
traits of a command economy communism
Traits of a Command Economy –Communism-

The government controls all aspects of the economy

Private property is illegal

Supply and demand are determined by the government, not by consumers and producers.

Everyone is paid equally no matter what job they do.

Industry and businesses are owned and controlled by the government, not private individuals.

how a command economy works communism
How a command economy works –Communism-

In the former Soviet Union the government killed small property owners and redistributed their land to workers.

In Cuba all residents are given rations of foods. Instead of purchasing food in a market Cubans go to government food supply centers.

criticism of command economies
Criticism of Command Economies

Command economies are inefficient and reward unproductive workers. Critics claim that since workers are awarded the same amount of money for doing every job workers aren’t productive.

Command economies result in shadow/ illegal markets. Because the government controls the distribution of goods, individuals begin to sell things illegally.

Command economies cease to stay competitive in the world because competition and entrepreneurship is discouraged.

mixed economy socialism1
Mixed Economy –Socialism-

Mixed economies exist somewhere between command and market economies. In a mixed economy the government tends to own major industries like utilities, health care and major manufacturing industries; however, individuals own most small businesses. Mixed economies tend to tax their citizens more than market economies, but less than command economies.

traits of a mixed economy socialism
Traits of a Mixed Economy-Socialism-

Works for the distribution of wealth and economic opportunity for all while still allowing freedom of choice

The government controls large industries and some property, while private individuals control small businesses and other property.

Citizens are taxed heavily to provide all citizens a social safety net such as welfare, free university tuition and free health care.

Workers tend to be somewhat less productive than those in market economies, but more productive then those in command economies.

Consumers generally have a wide variety choices.

how a mixed economy works
How a Mixed Economy works…

In France health care is free, university costs very little if you get in, and taxes are high. However, there are also private industries based out of France like Air France and Puegotthat are owned by French citizens.

In the United Kingdom health care is free and university is cheap, but citizens can purchase private health insurance and attend private universities if they choose.

In the United States the federal government owns much land in the West and private ranchers are allowed to graze their cattle on that land. However, citizens can also own their own businesses and private property

criticism of mixed economies
Criticism of Mixed Economies

Critics of mixed economies claim that they often result in unproductive workers because there is not as much incentive to work hard as there is in a market economy. As a result mixed economies often suffer from higher unemployment rates and lack the same number of entrepreneurs as market economies.

Mixed economies often must raise taxes in order to sustain all of the social services such as welfare, free health care, low cost university education and pension systems for the elderly which can lead to a stagnant economy.