Three Economic Systems Q2 W3

An economic system is the way a country decides who gets what? What will we produce? How will we deliver it? Who will consume it? Here are three economic systems, or economies. Traditional Economy Command Economy Market Economy Ivan and Olga keep it real! The government takes over! Hans wants to make money! Ivan and Olga are farmers in An official drives up and Their son owns the farm a traditional economy. They announces that their farm now, and he decides what to do things the way their now belongs to the produce based on what will grandparents did. They government. He tells them make the most money in the produce goods and provide what to grow, how to grow market. The government services that they consume it, and how much to grow. A stays out of it. He is free to themselves and share with quota is the amount they are produce what he predicts their neighbors. commanded to produce. consumers will want. The Old Way. The Government Way. The Get Rich Way.

Continuum A line going from one extreme to the other extreme. Where are you on the wisdom continuum? teacher FOOLISH------/\------WISE Mixed Economy In a pure market economy, individuals and businesses make all the decisions. You would decide what to produce and how much to charge; I would decide whether to buy it. In a pure command economy, the government makes all the decisions. The Soviet Union was a command economy. The government decided who did what and who got what.

Most countries are mixed, on a continuum between pure command economy and pure market economy; the government is involved in the market economy. How?  The government pays money to help farmers when there is a drought.  The government creates laws to make sure workers are safe.  The government protects consumers from false advertising.  The government makes it illegal to sell certain goods to children.  The government restricts certain business activities, like drilling for oil. All packaged food sold in the US must have this label. It gives information about the nutritional value of the food. Are businesses free to produce what the market wants? Yes. Sounds like a market economy. Does the government command businesses to use this label? Yes. Sounds like a command economy. It’s mixed: market economy with government regulation. You are free to produce, distribute, consume--but you have to follow the rules. This chart shows a mixed economy continuum. The far left is pure command; the far right is pure market. Below are the economies of four fictional countries. Place each economy on the continuum.

______/ | | \ ------COMMAND MIXED MARKET

Fictional Countries Dinkiton Dinkies are free to create whatever business they think will make money. Toxic chemicals in toys? Child labor? Dangerous factories? Full speed ahead! Finkiton In Finkiton, people run small businesses; the government runs big businesses. National steel! National oil! National ports! Now you build the ships. Big drives small! Binkiton Every aspect of Binkiton’s economy is determined by the government. You! Grow 100 tons of turnips this year. You! Teach social studies. The government knows best! Sinkiton Sinkies make free economic decisions, but the government has strict rules. New car design; wear seatbelts. Delicious cookie; nutrition label. Go ahead, but obey! 1. Which country has a mixed economy that is still heavily command. Describe that economy.

2. Which country has a free market economy? Describe that economy.

3. Which country has a command economy? Describe that economy.

4. Which country has a mixed economy that is strongly market-driven? Describe that one.