Economic System

Economic System

1. How society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals

   • Economics are important because they are the means by which countries and governments distribute resources and trade goods and services. They are used to control the five factors of production including labor, capital, entrepreneurs, physical resources , and information resources.

2. Traditional

   • Relies on customs, history, and time honored beliefs. Tradition guides economic decisions such as production and distribution
     • Barter instead of money. Only produce what they need.
     • Agriculture, fishing, hunting, and gathering
     • Centers around family or tribe
   • PROS: There is little friction between members. Customs and traditions dictate the distribution of resources. Not distructive to the environment and do not have the ability to produce more than they need.
     • CONS: Vulnerable to changes in nature, limit population growth, and vulnerable to market and command economies
   • The United States had many aspects of traditional economy before The Great Depression
     • Indigenous tribes in the Arctic
     • North Americam and eastern Russia rely on fishing and hunting

3. Command

   • Where a central government makes all economic decisions. Governments own the land and the means of production
     • Central plan sets priorities of all goods and services
     • Government owns monopoly businesses
     • Government creates laws, regulations, and directives to enforce central plan
     • PROS: Quickly mobilize economic resources on a large scale. Executes massive projects, creates industrial power and meets social goals. Workers receive new jobs based on the governments assessment of their skills.
       • CONS: Government tells workers what jobs they must fulfill. Discourages from moving, goods aren't produced on consumer demand, and discourages innovation.
   • North Korea - Worlds most centrally planned economy. Created food shortages, malnutrition, and mass starvation. Most resources go into building a military.
     • Cuba - Castro installed Communism and a planned economy.

4. Market

   • A system where the laws of supply and demand direct the production of services.
     • Supply includes natural resources capital, and labor.
     • Private property, freedom of choice, motive of self interest, competition, and limited government
   • PROS: Ensures that the most desired goods and services are produced, businesses will only create those things that return a profit, and goods and services are produced in the most efficient way possible, rewards innovation.
     • CONS: No system to care for who are at an inherent competition disadvantage, society reflects the values of the winners in the market economy, and Human Resources of the society may not be optimized.
   • The United States is the worlds premier market economy.

5. Mixed

   • System that combines characteristics of market, command, and traditional economies.
     • Protects private property. Allows free market and laws of supply and demand to determine prices. Driven by the motivation of the self interest of individuals. Allows federal government to safeguard its people and its market.
     • Government has a large role in the military, international trade, and national transportation.
   • PROS: Distributes goods and services to where they are most needed. Rewards the most efficient producers with the highest profit, and encourages innovation to meet customer needs more creatively, cheaply, or efficiently.
     • CONS: IF market has too much freedom, it can leave the less competitive members of society without any government support. Could protect the free market so much that it doesn't regulate enough.
   • The United States Constitution established a mixed economy. It protects ownership of private property and limits government interference in business operations. Constitution also protects the rights of groups to practice their customary beliefs (ex. Amish in PA).