Understanding Economic Systems Traditional Definition/Explanation/ Description An economic system that relies on custom, habit, and ritual to answer

the basic economic questions Free Market (Capitalism) An economic system in which voluntary exchange in markets by private owners answer most of the basic economic questions Command/Planned: Socialism Government owns and makes decisions about the use of resources as they relate to the public or collective good, but has a simultaneously high level of private ownership. Government makes decision on public resources, but market forces make decisions on private resources. High level of democratic government. Command/Planned: Communism Government owns and makes decisions about the use of all resources. Usually has an authoritarian political system.

How does this system answer Key Economic Question 1: What goods and services should be produced?

The Goods and Services produced are produced because they have always been produced

Supply and Demand determine what is produced in this economic system.

Government planners decide what should be produced.

How does this system answer Key Economic Question 2: How should goods and services be produced?

How does this system answer Key Economic Question 3: Who consumes goods and services (and how are goods and services allocated?)

The methods of production are unchanged over time. People in this economic system produce things the way they have always produced things. Distribution of goods and services is decided by custom.

Production methods based on efficiency and driven by profits are what determine how goods and services are produced.

Government makes decision on public resources, but market forces make decisions on private resources.

Government planners decide how goods and services are produced.

Goods and services are distributed through the price system: those who can afford the goods and services buy them.

Government makes decision on public resources, but market forces make decisions on private resources.

Government planners decide how to distribute goods and services.

Understanding Economic Systems Pros of the system and/or analysis of which economic goals are best met by this system. This system is usually uncomplicated and provides subsistence for all. Equity is a key goal in this system. Innovation, low prices, many choices, high standard of living, personal and national wealth, economic freedom are all pros of this systems. Freedom, Efficiency and Growth tend to be the most important goals of this economic system. People in this system Great disparity of wealth, are generally poor, individual over collective slow to adapt to good is emphasized, in its modern technology, pure form, there is little lack modern amenities regulation which can lead and are exposed to to exploitation of dramatic changes resources, monopolies and caused by concentration of wealth in environmental or other the hands of the few. economic disasters. Government provides many public services designed to improve the standard of living for all. Equity is the central goal in this system. Equity is the main goal in this system. In theory, the collective good is more important than individual wealth.

Cons of the system and/or analysis of how well it meets the broad economic goals of society.

High taxes are needed to support the high level of government goods and services.

In reality, this system is very inefficient, there is little incentive to work hard, planners are out of touch with consumers and their needs and wants, little economic freedom exists. Often shortages exist.

Examples (Nations or people with this type of system)

Usually found in rural areas of most nations. Amish in the United States.

USA, Japan, South Korea, Taiwan, Singapore.

Most of Western Europe, USSR, North Korea, China Canada, and Australia are (more like authoritarian classic examples capitalism), Cuba are examples of this type of economic system.