Transcript Economic Systems

What goods and services will be produced and
in what quantities?
How will each of the goods and services be
produced?
For whom will the various goods and services
be produced?
4 types of economic systems …
the traditional system
the command system
the market system
mixed system
Traditional system: the same goods are produced
and distributed in the same way by each successive
generation.
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Provides clear and easy answers 3 central
questions.
Rigid & slow to adapt to changing conditions;
resists innovation.
Command system: participants are instructed what to
produce and how to produce it by a central authority
which also determines how the output is distributed.
AKA centrally planned systems.
Central planners answer 3 central questions.
Market system: economic system in which
there is free competition and prices are
determined by the interaction of supply and
demand.
3 central questions answered by market
mechanism.
VIDEO:
https://www.youtube.com/watch?v=ulyVXau4wE
The rationing function
Ration scarce supplies to those who place the
highest value on them (and can afford to pay for
them).
The allocative function
Prices send signals
• Excess demand
• Prices increase
• Higher prices = increased profits
• Additional entrants into market
• Supply increases
• Prices drop back to equilibrium
Click on the following page to unjumble the characteristics of different economic systems…