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Economic Systems
Chapter 5 Section 5
Comparing economic systems:
Types of economic systems
• What do all economic systems have in
common?
• All people produce and consume goods and
they must answer three questions.
• If you lived alone in a forest, you would gather
wood for your fire and food to eat. You would be
both the producer and the consumer of the
firewood and the food. In much the same way, a
family, village, or nation must produce and
consume goods. This is true for all people, no
matter what economic system they live under.
Since all people produce and
consume goods, they must decide:
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WHAT should be produced?
HOW should these goods be produced?
WHO should get the goods and services that are produced?
Examples:
Should the nation produce more automobiles or diesel trains,
spaceships or homes for the poor?
• Should factories add more automated equipment and employ fewer
workers, or should they use fewer automated machines and more
workers?
• Should everything be divided up equally, or should some people
received more than others?
• All people have different ideas what is important to them. A society
also has its own ideas of what is most important to it. One society
may think that becoming the world’s strongest nation is the most
important thing it can do. Another society might think that ending
poverty at home is more important than becoming a world power.
Think of your school as an
economic society.
• You are the consumer. The school is producing
services in the form of classes in math, industrial
arts, typewriting, economics, and science. At
your school, the questions WHAT shall be
taught, HOW they shall be taught, and WHO will
take these courses must be answered.
• There are four ways of answering these
questions: Traditional, Command, Market, or
Mixed.
How Economic Systems Work in Theory:
Traditional Economic
• 1. Monarchy/Dictator/ Democracy
• Traditional Economies: goods and services are traded without
money;
• your school may say it is teaching economics because it has
always taught economics. In the same way, a society might say
it will hunt for food at a certain time, in a certain place, and in a
certain way because it has always done so.
• One person, group of people or is voted on
• If you have four cows, it usually shared among the people or
you can trade the milk or cow for something your need.
Command Economy
• 2. Communist/Dictatorship
• Command economies, central govt. decides what
goods & service are needed.
• your school may tell you what courses to take, how and
when to walk through the halls, and how to dress. A
command economy will decide what is to be produced. It
may ordered people to take certain jobs.
• Production is decided by the Government. They will
decide how much to produce and who will get it.
• If you have 4 cows, the government can take them away.
If you refuse they can shoot you and still take them
away. They decide what to do with them.
Free Market Economy
• 3. Representative Democracy or a Capitalist Country
• Market economies: in which demand from consumers
determines the production of goods & services.
• Your school may allow you to select the courses you
want to take. If the school sees that students do not
freely choose a course, it will drop that course and give
one that student’s want. In the same way, a free market
economy will produce the goods and services that
consumers indicate they want.
• Production is determine by consumer. Supply and
Demand.
• If you own four cows, one can sell the cows, sell the
milk, rent them, breed them or just invent ways to make
a profit.
Mixed Economy
• Socialist Government
• Mixed economies: which combine command and
market economies. Government type would Socialism.
• Your school allow you to take electives, but you need to
take required courses in order to graduated. {Free
choice in certain things}
• Production is usually is determine by supply and
demand, but the Government will usually get involved if it
affect many people. Ex: Medical care, transportation, gas
or oil. But people can make a profit.
• If one owns 4 cows, the government can take two to feed
society, but will let you keep two so you can do whatever
you want with it.
Stages of Economic Development
• How people earn a living is one way of measuring a country’s
economic development.
• Developed Countries: Modern industrial societies with welldevelop economies. Wealthier countries.(U.S.,Japan,France)
• Developing Countries: They depended on the developed
countries. (Manufacturing)
• Undeveloped Countries: They depend on traditional economics.
• Per capita: the average amount of money earned by each person of
a political unit, is another measure of development. The GNP is
divided by the country’s total population.
• GNP: the total value of all goods and services produced by a
country over a specified period time, within a country
• GDP: the value of only goods and services produced within a
country over a specified period of time. Within a country and any
business outside of the country.
Economy & Infrastructure
• 1. The production and exchange of goods
and services among a group of people.
• 2. the basic support systems needed to
keep an economy going, including power,
communication, transportation, water,
sanitation, and education.
Each country goes through a period of
advancement: Economic Activity
Primary Activities
• Define: gathering raw materials, they use
natural resources directly.
• Stages: Tribal, undeveloped
• Ex: fishing, forestry, & mining (Agriculture &
Forestry)
• Time period: 1500s, 1776, U.S. Africa, Mexico
& Europe
• Infrastructure: Dirt Roads, Small market, Wells,
horses, Wagons, mail, Villages or small towns.
Secondary Activities
• Define: adding value to the materials by
changing their forms. industries use and process
nature resources.
• Stages: Developing countries
• Ex: food processing (turning raw materials into
finished products).
• Time period: 1860s, U.S. Africa, Mexico, &
Europe
• Infrastructure: Caliche roads, Bikes, Horse
Carriages, Wagon, started the invention of cars,
Different main roads, cities have lights,
telegrams, trains & Industrial Revolution
Tertiary Activities
• Define: which involves furnishing personal or
professional services, Businesses that are not related to
manufacturing or raw materials.
• Stages: Developed Countries
• Ex: (transportation, sales, advertising, education,
banking, health care, & govt.: Providing services)
• Time period: 1950s-late 1980s: U.S., Europe, Canada, &
a little in Mexico or Latin America Countries; very little in
Africa. Corruption in government or civil unrest
• Infrastructure: Trains, extensive highways, phones line,
electricity, data processing center, sewer system.
Quaternary
• Define: involves providing information, management,
and research service.
• Stages: Developed countries
• Ex: Computer Services, Research, information. Doctors,
Lawyers, CEO, Teachers, Sales, Very little
Manufacturing & last, highly educated or train people.
• Time period: 2000, U.S., Canada, Some countries in
Western Europe.
• Infrastructure: Extensive Highways, Commuter trains,
sewers systems, internet, Cable, Cell phones, Digital
T.V.,