Econ: Types of Systems

Types of EconomiesAll societies must make choices about what to have and what to give up because resources are always scarce compared to people’s wants. How those choices get made depends on a society’s economic system. Every society is faced with three economic questions:  What goods and services should be produced? How should they be produced? Who should get what is produced? How a society answers those questions depends on its economic goals. These goals include economic freedom, efficiency, equity, growth, security, and stability. Societies have developed three economic systems to answer these questions.

In a traditional economy, decisions are dictated by custom, tradition, and the ways of ancestors. The goals are economic security and stability.

In a command economy, a powerful ruler or government makes decisions. The goals are equity and security.

In a market economy, decisions are made by the interactions of producers and consumers. The goals are economic freedom and efficiency.

Most countries today have a mixed economy, in which both the government and individuals have a voice in economic decisions.

Americans describe their economy as a free enterprise system. This system has seven key characteristics.
• Economic freedom to buy and sell what we want and work where we want
• Competition among firms, which try to attract customers with new and better products
• Equal opportunity to make the best use of our talents, abilities, and education
• Property rights that allow us to buy, own, and sell goods and intellectual property
• Binding contracts, which give us confidence that others will abide by their agreements
• The profit motive, which provides an incentive to work and start new businesses
• Limited government that regulates without controlling individuals, firms, or the market

1) Read Chapter 3.3 pp.41-46



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