Lesson 1-1Economic Systems

The basic economic problem is

Scarcity

People want to buy things, but things (resources are scared)

To decide how to allocate scarce resources, society has to answer three questions.

1. What to produce?

2. How should things be produced?

3. For whom should they be produced?

Will we build guns? Or produce food?

Will we build things by hand or build factories?

Should we build products for the elderly or or babies?

Traditional Command Market

STOP

Traditional Economies

Are led by a wise, mature leader, often chosen by birth

Do things as they've always been done.

Are the least common type of economy.

In fact, people's job choice is often controlled by what family they are born into

People's are often suspicious of new ideas and new technology

Is the United States a Traditional Economy?

Some parts are. The Amish people, for example, still live as they have for generations.

Command Economies

The government owns the businesses, hires and fires workers, set prices, and so on.Are run by the government.

Kim Jong Il (Recently deceased leader of North Korea)

In short, government answers the three questions of what to produce, how to produce and for whom to produce.

Is the United States a Command Economy?

The United States PostOffice is owned and operatedby the US Government

Market Economies

Busnesses are owned and run by individuals and groups of business leaders.

Prices are set by supply and demand.

Private ownership ofbusinesses and other economicresources is called Capitalism

Is the United States a Market Economy?

For the most part, yes!

Because the United States and most other countries have some elements of Traditional Economies, Command Economies, and Market Economies, we say that most countries have a Mixed Economy.