Economic

Systems
The Three Key Economic
Questions
1.

1. What goods and services should be

produced?

2. How should goods and services be

produced?

3. Who consumes goods and services?

Command Economy (Centrally Planned)
PROS CONS
• Government owns the
• Low unemployment. factors of production.

• Less class distinction. • Little consumer choice.

• Basic needs are met. • Quantity not quality.

• No incentive for the

workers.

• Sacrifice individual
freedoms.
What does this photo say about a command economy?
Incentives: an expectation that encourages people
to behave a certain way.

List two incentives in your life.

1.

2.
Market Economy (Free
Market)
PROS CONS
• Individuals own factors • Large gap in the distribution
of production. of wealth.
• Voluntary exchange. • Booms and busts in the
• Encourages growth and economy.
specialization. • Does not provide for things
• Incentive/competition- the market does not address.
profit. • Ex. National Defense,
Police, School, Parks.
The Invisible Hand
PROS CONS
• Government regulations • Too much regulation
= consumer protection. inhibits growth.
FDA
• Property rights, patents • Encourage social
• Taxes: provide social dependency on
benefits. government programs.
• National Defense,
Police, Schools, Parks. • When, where, and what
• Taxes: “Safety net” for extent should government
those who cannot provide step in.
for themselves.

Mixed Economy
Championship Rock, Paper,
Scissors…..Lets see the economic
systems in action!
Time for a play
I love I love free
What if ……………………..
command market
economies! economies!
Checking For Understanding
(Command, Market, or Mixed)

• The regulations government provide

can be looked at as a positive because
they can protect the consumer.

Mixed
• There is little consumer choice.

Command
• Quantity not quality.

Command
• Too much regulation might inhibit
growth.

Mixed
• The individual owns the factors of
production.

Market
• Sacrifice individual
freedoms.

Command
• Things not provided in the market are
not addressed.

Market
• The rich can get richer.

Market
• One might work harder while the
other who slacks off gets the same
pay.

Command
• Your tax money allows for the
building of things not addressed in the
market.

Mixed
The Invisible Hand: Self-interest and competition work together
to regulate the marketplace. Adam Smith, The Wealth of
Nations 1776

* In a sales transaction, buyers and sellers consider only their

self-interest, which is the motivating force behind the free
market.

Incentive

Buyers Sellers
“Get a good deal” “Make Profit”
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