Download Types of Economies

7.3
Types of Economies
Economic Systems
 Market
economy
 Command economy
 Mixed economy
 Traditional economy
Market Economy
 An
economic system in which businesses
and consumers, not the government, decide
what is produced.
 It is also known as Free Enterprise or
Capitalism.
 The economy is influenced by Competition,
Supply, and Demand.
 No pure market economy exists, thus most
economies in the world are Mixed.
 Most market economies exist in the western
countries.
Many criticize the current “bailouts”
going on in our current economy.
Free Enterprise or Capitalism
 Capitalism
generally refers to an economic
system in which the means of production are
all or mostly privately owned.
 Profit is the main motive.
 In a capitalist economy, “Greed is Good”
because a person’s want to make profit will
drive the economy.
 If a producer of a product creates and sells
something the public does not want, the
consumer will simply not buy it.
 The producer will go out of business.
Gordon Gekko
says Greed is
Good
Many argue that corporation executives
have taken this concept too far!
Consumer sovereignty - the idea that
consumers control the market with their wants.
If consumers do not like an item, they will
simply not buy it and it will go out of business.
 Competition - more than one type of a
product for consumers to choose between.
Competition lowers the price for consumers and
increases the product’s quality.
 Private Property - consumers in a market
economy have a choice what they buy and
own.
 Profit Motive - the want to make money
drives the American economy.

Adam Smith – “Father of
Capitalism”
 Wealth
Adam Smith
of Nations - 1st modern economic
book based on free market, profit motive,
and laissez-faire economics.
 Laissez-faire - “to let alone”. Laissez-faire
was an idea that promoted free trade of the
individual and as little government
involvement as possible.
 Invisible Hand - Smith argued that the
pursuit for your own financial success will
guide the economy like an invisible hand. An
individual’s self-interest will benefit society’s
economy as a whole.
Command Economy
 An
economic system in which the
Government controls everything in
the economy.
 It is also known as a planned
economy because the government
plans every aspect in the economy.
 There is no private property or
ownership. It is all shared by
everyone.
Many Communist countries have
changed their economic beliefs.
Karl Marx – “Father of
Communism”
Karl Marx
 Communist
Manifesto
 Wrote about a classless utopian society
where government owned all of the means
of production.
 VI Lenin used his ideas to set up the USSR.
 A dictator is needed to control this
economy.
 Marx is often called the father of
communism.
The Cold War (1945-1991) developed from the tension
between the United States and the Soviet Union.
 It was a clash of different ideas about economic systems and
government control.
 It led to wars in Korea and Vietnam for the USA.
 Many feared Communism would spread world-wide.

A
Mixed Economy
mixed economy is an economic
system that incorporates the
characteristics of several different
economic systems.
 Usually combines a mixture of market
(free) and command (government)
economies.
 The individual will have the economic
freedom of choice intertwined with
government planning (like Social Security
or free healthcare).
 Does this sound like the USA?
John Maynard Keynes
The Keynesian Theory
– Economic system that promotes mixed
economies.
– He stressed the importance of government
involvement for a successful economy.
– During the Great Depression, he felt it was
the government’s duty to help. FDR
eventually used many of Keynes’s ideas.
 Fiscal Policy – the strategy of how the
government is going to spend its revenue.
 Deficit Spending – The government spending
more money than it takes in.

John
Maynard
Keynes
Traditional Economy

A traditional economy is the least developed type
of economy because it makes economic decisions
the way it has always been. It is based on tradition,
custom, and the way things have always been done.
They have not changed very much over time.

Most traditional economies are agricultural only.

Often they exchange goods by bartering (trade).

Traditional economies are not efficient. They offer
few goods and it is very much based on labor.

They are often called “Third World Countries”

Found in agricultural parts of Asia, Africa, and South
America.
Most Successful Economic Systems
combine individual freedom and
some government planning.
• Communism
• China
• North Korea
• Cuba
Command
Economy
Mixed
Economy
• Socialism
• Canada
• Western Europe
• Mixed Market
• USA
• Mostly market with
some government
planning
Mixed Market
Economy
Market
Economy
• Capitalism
• Free Enterprise
• NO PURE MARKET
ECONOMY EXISTS!
Who answers
the 3 basic
questions?
Market
Economy
The people answer
the 3 basic
questions
Command
Economy
The Government
Answers the 3 basic
questions
Mixed
Economy
The market and the
Government work
Together to answer
the 3 questions