Download Types of Economies

Types of
Economies
UNIT VI – Fundamentals of
Economics
How do we know?
In order to understand which type of
economy a country has, a few factors
need to be looked at
How much economic freedom does
the consumer have?
How much is the government
involved controlling and
distributing resources?
How much is the government
involved in regulating businesses?
4 Types
There are essentially 4 types of
economies
Market Economies
Command Economies
Mixed Economies
Traditional Economies
Market Economy
Provide the most economic
freedom for citizens
There is VERY little to NO
government involvement
In this system the consumers
make the decisions that effect
the economy
Market Economy
Concepts
Consumer Sovereignty – the
consumers hold the power
Capitalism – citizens own most,
if not all, of the factors of
production
Free Enterprise – businesses can
be freely created to compete with
others
Laissez-faire – government
should stay out of economic
matters
Profit Motive – the ability to make
a profit and improve well being
motivates people to work harder
Private Property Ownership –
gives incentive to work, save, and
invest
Market Economy
Supporter: Adam Smith
Wrote “The Wealth
of Nations” in 1776
Claimed that the
“invisible hand” of
the market would
guide businesses
to act in the best
interest of all
Command Economy
Provide the least economic
freedom for citizens
The government controls most,
if not all, the factors of
production
In this system the consumers
have very little influence
Tend to be ineffective and grow
slowly
Command Economy
Concepts
Socialism – Belief that all factors
of productions should be owned
and controlled by society, wealth
should be evenly distributed
Communism – next step after
socialism, government answers all
economic questions and controls
everything
Command Economy
Supporter: Karl Marx
Wrote “The
Communist
Manifesto” in 1848
Believed socialism
would evolve into
communism
One class would
evolve and all
property would be
held in common
Mixed Economy
Provide some economic freedom for
citizens
The citizens and government share
control of the factors of production
Varying degrees of a mixed economy
can occur
Most common type of economy today
U.S. has a mixed-market economy –
meaning we are mixed but lean
towards a market system more
Mixed Economy
Supporter: John Keynes
Developed a new
theory, the Keynesian
Theory, of economics
in the 1930s that
supported a mixed
concept of economics
Has been credited
with changing the
way most of the world
views economics
Traditional Economy
Economic decisions are based on
custom or habit
Things are done the way they have
always been done
Leads to very little advancements
Tend to be very poor, agriculturally
based countries