Download Three Types of Economic Systems

Types of Economic Systems
Main Idea:
People produce, buy, and sell goods in a variety of ways.
Each country has an economic system, or a way to make
decisions about how to use the resources of that country. An
economy is a system in which people produce, sell, and buy
things. There are three main types of economic systems in the
world today – market economies, command economies, and
traditional economies.
The Free Enterprise or Market Economy – In the United
States and other nations with limited governments citizens and
businesses make most economic decisions. The government
plays a small role. It does not decide what goods or how many
goods are produced. It does not set prices for goods or services
or tell people where to work. These are qualities of a free
enterprise/market economy. In a free enterprise economy
business owners compete with each other in the market place
with little or no interference from the government. Other
nations such as Canada, many countries in Western Europe, and
Japan, also have market economies.
Command Economy – In a command economy, the
government makes most of the economic decisions. It controls
both farms and factories. People and businesses in a command
economy are not free to make their own decisions. The
government decides what goods are produced, how many of
which goods are produced, and also at what price all goods will
be sold. The government also decides how much the workers
will earn. This type of economic system often leads to less than
enough or too much of different goods. Command economies
usually are found in countries with dictatorships or countries
such as North Korea and Cuba with communist governments.
Traditional Economy – In a traditional economy, economic
decisions are based on custom or habit. Life changes little for
people living in a traditional economy. People do the same kinds
of work that their families have been doing for many
generations. Most people practice subsistence
farming. Subsistence farming is only hunting for or
growing enough food for yourself and your family.
Because of this, they are not able to buy better tools to
improve their way of farming. They must work as they always
have. People in traditional economies also make their own
clothes and build their own homes. If they produce more than
what they need, the extra can be traded for other goods. India
has features of both market and traditional economies.
The Global Economy – The world relies on a global
economic system. Valuable resources such as oil
and iron are not spread evenly between countries.
One country might be rich in many resources, while
another might be rich in only one resource.
Therefore, the people of the world must trade with one another
to meet their needs. This is called economic
interdependence. Because of economic interdependence, a
hurricane that destroys the banana crop in Costa Rica will cause
banana prices in the USA to rise. Also, if the oil producing
countries of the Middle East decrease the supply of oil on the
world market, the price of gasoline will increase.
Adapted from Harcourt Horizons, 2003; Globe Fearon Global Studies,
1997; and McDougal Littel Geography and Culture, 2003.
Name: ______________________________________ Adams______
Types of Economies
Complete each box with information about each economic system.
Free Enterprise (Market)
Economy
Command Economy
Traditional Economy
Key Vocabulary
Economy- a system in which people produce, sell, and buy things.
Free enterprise Economy- a system in which privately owned businesses create goods that
people buy in markets.
Gross domestic product (GDP)- the total value of goods and services that a country produces.
Mixed Economy- a system that has elements of a free enterprise and command economy.
1) Copy a sentence that uses the word economy.
2)
2) Draw the meaning of economy
3) In your own words, what does economy
mean?
4) Write your own sentence with the word economy.
5) What are the three types of economies? (Use a complete sentence.)
6) Explain who has the power in a command economy? (CS)
7) What will cause prices of a product (ex. bananas) to rise? (CS)