Economic Systems
Def: the method used by a society to produce and distribute goods and services.
or, how the government tells us what we can do.
All Economic Systems Must Consider the Following Questions
- What goods and services to produce?
- How will they produce them?
- Who will get them?
1. Traditional Economy
Agriculture or hunter gatherer. (The way it has always been done.)
Children work the same job as their parents worker, often farmer and hunter/gatherer.
2. Command Economy
The government answers the basic economic questions
Advantages: able to act quickly in emergencies, provide for all people equally
Disadvantages: Inefficient, no incentive to work hard or be creative.
Ex. Communist countries (Chine, Vietnam, North Korea, former Soviet Union, Cuba)
3. Free Market Economy
Economic questions are answered by individual buyers and sellers.
Supply and demand influence economy
People act out of self interest, motive for profit(money) drives the economy
Also known as FREE ENTERPRISE or CAPITALISM
4. Mixed Economy
In reality, most countries are mixed economy.
Canada is the most Free Market but does have elements of a Command Economy we are therefore a social democracy (socialist).
Components of the economic freedom of the World Index
- Size of government and taxation