Economic System Notes

THREE BASIC QUESTIONS IN ECONOMICS

• Because economics is about how we make choices, three basic economic questions define the type of economy we create:

What to Produce? How to Produce? For Whom to Produce?

TYPES OF ECONOMIC SYSTEMS:

TRADITIONAL SYSTEM

• resources are allocated based solely on tradition and custom / religion of culture.
• (ex). Africa, Middle East, Latin America

Punta Mona Community Costa Rica

COMMAND or CONTROLLED

• Command or “Control” Economy – individuals in society have little or no control over econ. Questions – government decides how, what and for whom to produce. Government controls all four factors of production and makes every economic decision. (ex) Communist nations, wartime America

MARKET ECONOMY

• Market Economy - opposite of Command Economy, in a pure market economy private businesses control all means of production and decide how, what and for whom to produce based solely on market forces of supply and demand.
• NO government intervention or regulation whatsoever.
• Competition and profit motivate and dictate the answers to the three econ. questions.

MIXED ECONOMY

• Mixed Economy – combination of command and market economy. Most industrialized nations today have a form of a mixed economy. (ex. USA during peacetime is more market than command, yet when wartime occurs, government steps in on businesses for the war effort.)