Economic Systems Overview

Economic Systems

• An economic system is a way a country allocates resources, protects them, and distributes goods and services for its citizens.
• There are four main types of economic systems: traditional, command, market, and mixed.

Command Economic System

• The government controls production levels.
• Examples include Cuba, North Korea, China, and Vietnam.
• Characteristics:
  • Government controls wages and pricing.
  • Limited property rights.
  • Government owns key businesses and industries.
  • Robust black markets.
  • No competition.
• Advantages:
  • Focuses on meeting clear economic goals.
  • Good for early stages of society when basic infrastructure is needed.
  • No waste due to competition.
• Disadvantages:
  • Low standard of living.
  • Discourages new and innovative ideas.
  • No incentive for people to work hard.
  • Doesn't necessarily meet the wants and needs of the people.

Market Economic System

• Prices of goods and services are guided by the interaction of individuals and businesses.
• Characteristics:
  • Private property.
  • Freedom of choice.
  • Motivation of self-interest.
  • Competition.
  • Limited government intervention.
  • System of markets and prices.
• Advantages:
  • Can adjust to change over time.
  • Freedom of choice.
  • Private ownership of property.
  • Equal access to information.
  • Large variety of goods and services.
• Disadvantages:
  • Winners and losers.
  • Individuals must be competitive.
  • If people are unable to work, they may not be able to support themselves.

Mixed Economic System

• Combines aspects of capitalism and socialism.
• Characteristics:
  • Protects private property.
  • Motivated by self-interest.
  • Government protects both the people and the market.
• Advantages:
  • Ensures basic needs like healthcare, education, and housing.
  • Promotes innovation and creativity to meet customer needs cost-effectively.
  • Balances individual freedom and social responsibility.
• Disadvantages:
  • Excessive taxation.
  • Government monopolies.
  • Ineffective regulation.

Traditional Economic System

• Production of goods and services is based on a society's customs or beliefs.
• Characteristics:
  • Often based on hunting, fishing, and gathering.
  • Barter and trade often used instead of money.
  • Limited supply produced.
  • People live in families or tribes.
  • May follow herds of animals to hunt and sustain themselves.
• Advantages:
  • Strong community.
  • Specialization.
  • Self-sufficiency.
  • Defined roles.
• Disadvantages:
  • Lower living standard.
  • Lack of motivation.
  • System is resistant to change.
  • Less productivity.
  • Uncertainty.