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The Three Major Economic Systems Command, Market and Mixed Economies
Guess The Economic System • China • United States • Germany • South Africa • Canada
Answers • China-Mixed Economy (Leans toward Command) • United States-Mixed Economy (Leans toward Market) • Germany-Mixed Economy • South Africa-Mixed Economy • Canada-Mixed Economy • Did these answers surprise you? Why or Why not?
Command Economy • The economy is run by an authority and not the market. • The authority tells people what to make, how to make it and how much to make. • The authority controls the economy through quotas, rationing and price and wage controls.
Purposes of a Command Economy • Maximize resource mobilization for the benefit of the country • Radically transform the socio-economic system for better economic equality • Organize the economy
Pros of a Command Economy • Effective and rapid economic modernization. • Attempted economic equality
Cons of a Command Economy • Inefficiency of economy • No “material incentive” or “profit motive”
Two Questions About Command Economies • Why might people want a Command Economy? • Why aren’t there more Command Economies in the World?
Market Economy • Market economies emphasize private property, self interest and freedom of enterprise and choice • This is accomplished through limited governmental role in the economy, no price controls and promotion of competition.
Purposes of a Market Economy • Full Employment • Low Inflation • Economic Growth • Efficiency of the Economy
Pros of a Market Economy • Efficiency in producing what people want to buy at the lowest cost • Promote economic growth • Free entry and exit of businesses
Cons of a Market Economy • Low Economic Equality • Full Employment?
Two Questions About Market Economies • How does a Market Economy fulfill its purposes? • Why would the purposes of a Market Economy be necessary in a modern economy?
Mixed Economy • Hard to define • But, it combines economic freedom with government regulation • People have the freedom to produce what they want in the manner they want • The government can regulate businesses, like passing minimum wage laws
Purpose of a Mixed Economy • Have the public and private sector work harmoniously together • Businesses can perform efficiently while the government can make sure those businesses are being fair and to limit negative externalities
Pros of a Mixed Economy • Allows for competition among businesses • But, government regulation protects the public from the worst aspects of economic freedom. • Taxes help pay for government programs
Cons of a Mixed Economy • The wrong regulation can be catastrophic to the economy • Businesses have nosay in how much they get taxed
Two Questions About Mixed Economies • Why would businesses need regulation? • How does a Mixed Economy limit the worst aspects of a Command Economy and a Market Economy?