YFF - Economic Systems (Lesson)

Economic Systems

Introduction 

four economic systems market command traditional mixed There are four major types of economic systems. The four economic systems are

  • market economy
  • mixed economy
  • command economy
  • traditional economy.

Each type of economic system, found in countries around the world, faces the problem of scarcity by answering three basic economic questions:

  • what to produce?
  • how to produce it?
  • for whom to produce it?

 

The Four Economic Systems

Market Economy - The three economic questions of what to produce, how to produce it and  for whom to produce it are made by what the consumers demand or want to buy. What is produced is directly made by sellers in order to have efficiency and make a profit. 

  • Strengths - This type of economic system adjusts to change quickly. Individual freedom of choice is encouraged. The government stays out of most economic decisions and allows the interactions between buyers and sellers to determine the course of the economy. This type of economy also provides a wide variety of goods and services.
  • Weaknesses - Some people are too old, too young or too sick to provide for themselves. In a market economy, the government does not provide for all the needs of their citizens.The market can also fail which can cause unemployment, inflation and poverty.

Command Economy - A central planner answers the three economic questions of what to produce, how to produce it and for whom to produce it. Leaders make the economic decisions, and the people are expected to go along with the choices of their leaders.  Many Communist countries have command economies.

  • Strengths - The economy can change quickly and still be successful
  • Weaknesses - The economic system is not designed to meet the wants and needs of individuals. This type of economy discourages entrepreneurship and ingenuity of ideas.

Traditional Economy - All economic activities and decisions are made based on ritual, habit, or customs that were established by an ancestor or elder in society.

  • Strengths - Everyone knows their role in society. Economic activity is predictable.
  • Weaknesses - Discourages the development of new ideas. Lower standard of living due to lack of economic progress.

Mixed Economy - All economic decisions are made with some combination of the above types of economies. For example, the United States has a mixed economy. We are mostly a market economy, but sometimes the government steps in and sets certain prices to protect industries. For example, the government sets the prices on a lot of produce to try to help farmers make a living.

 

 

Map demonstrating economies of the world. Explanation of image is listed in paragraph below.  

According to the world map above, countries that are closer to a market economy are identified as "free" and are labeled "dark blue" in color. Countries that are "unfree" are closer to a command economy and labeled red. Countries that fall in between dark blue and red are mixed economies. There are many mixed economies that fall closer to a market economy like the United States and Australia. Other countries such as Cuba, North Korea and China have mixed economies. These countries fall closer to a command economy on the economic freedom scale.

 

Review

Review your terms for this lesson by completing the activity below.

 

Image of an Arrow 

 


Think About This

 

Click here to download a study guide for you to review. Links to an external site. Then watch the video below to see 5 quick facts about this module.

 

MAP BY AAAARG, CC-BY-SA, VIA WIKIMEDIA COMMONS

ALL OTHER IMAGES CREATED BY GAVS